How will regulatory agencies like the CFPB, FTC, and State Attorneys General react to the consumer financial impacts of COVD-19?  What kinds of consumer litigation may be spurred by the crisis?

On Monday, April 6, 2020, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr will hold a webinar, “Consumer Financial Regulatory and Litigation Fallout from the COVID-19 Crisis.”  Our special guest speakers will be Richard Cordray, former Director of the Consumer Financial Protection Bureau and author of the recently-published book “Watchdog,” and John Roddy, Partner at Bailey & Glasser and prominent plaintiffs’ class action lawyer.

The webinar is open to Ballard Spahr clients, prospective clients, and other persons invited by Ballard Spahr.  To register, click here.

We will discuss these questions and other issues with our guests and the leaders of Ballard Spahr’s Consumer Financial Services Group.  The issues we will discuss include:

  • How we expect regulatory agencies to react to the current crisis
  • Industry practices or borrower harms that regulators will be interested in
  • Operational areas that may be impacted by working remotely
  • The impact on private and governmental consumer litigation, including class actions
  • What steps the financial services industry should take to reduce exposure to litigation and government enforcement initiatives
  • UDAAP and fair lending issues
  • Forbearances, loan modifications and credit reporting
  • Scams, phishing, and how they will impact consumer finance companies

To listen to our recent podcast in which Mr. Cordray was our special guest, click here.  Our recent blog posts concerning the COVID-19 crisis that involve issues of particular interest to the consumer financial services industry are available here.

 

 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes the following key provisions that affect financial institutions and regulation of financial institutions:

Section 4003 – Emergency Relief and Taxpayer Provisions

Section 4003 of the CARES Act generally authorizes the Treasury Secretary to make loans, loan guarantees, and other investments in support of eligible businesses, States, and municipalities that do not, in the aggregate, exceed $500,000,000,000 and provide the subsidy amounts necessary for such loans, loan guarantees, and other investments in accordance with the provisions of the Federal Credit Reform Act of 1990, including not more than: (a) $25,000,000,000 for passenger carriers and other eligible businesses; (b) $4,000,000,000 for cargo air carriers; (c) $17,000,000,000 for businesses critical to maintaining the national security; (d) $454,000,000,000 and any amounts available that are not used as provided under sections (a) through (c) to make loans and loan guarantees to, and other investments in, programs or facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, States, or municipalities by purchasing obligations or other interests directly or on the secondary market or making loans, including secured loans.

In entering into an agreement to make loans or make loan guarantees, the Secretary must determine that (a) the applicant is an eligible business for which credit is not reasonably available at the time of the transaction; (b) the intended obligation by the applicant is prudently incurred; (c) the loan or loan guarantee is sufficiently secured or is made at a rate that (i) reflects the risk of the loan or loan guarantee; and (ii) is to the extent practicable, not less than an interest rate based on market conditions for comparable obligations prevalent prior to the outbreak of COVID–19; (d) the duration of the loan or loan guarantee is as short as practicable and in any case not longer than 5 years; (e) the agreement limits stock buybacks; (f) the agreement limits dividends; (g) the agreement provides that, until September 30, 2020, the eligible business shall maintain its employment levels as of March 24, 2020, to the extent practicable, and in any case shall not reduce its employment levels by more than 10 percent from the levels on such date; (h) the agreement includes a certification by the eligible business that it is created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States; and (i) for purposes of a loan or loan guarantee to passenger airlines, cargo carriers and businesses critical to the maintenance of the national security, the eligible business must have incurred or is expected to incur covered losses such that the continued operations of the business are jeopardized, as determined by the Secretary.

Section 4003 of the Act also directs the Secretary to establish a program to provide low-interest loans for eligible businesses (including nonprofit organizations) with between 500 and 10,000 employees.  Although these loans do not need to require repayment for at least six months, recipients must certify that (a) the company intends to maintain at least 90 percent of their current workforce; (b) the company will not pay dividends or repurchase stock (or other equity securities); (c) the company will not outsource or offshore jobs during the loan period or two years thereafter; (d) the company will not abrogate existing collective bargaining agreements with labor unions; and (e) the company will remain neutral in any current or future union organizing effort.  No entity currently engaged in a bankruptcy proceedings is eligible for the program.

Section 4004 – Limitation on Certain Employee Compensation

Section 4004 of the CARES Act requires recipients of a loan or loan guaranty from the date of execution of the agreement to one year after retirement of the obligation if the agreement provides that (a) no officer or employee of the eligible business whose total compensation exceeded $425,000 in calendar year 2019 (other than an employee whose compensation is determined through an existing collective bargaining agreement entered into prior to March 1, 2020) (i) will receive total compensation which exceeds, during any 12 consecutive months of such period, the total compensation received by the officer or employee from the eligible business in calendar year 2019; or (ii) will receive severance pay or other benefits upon termination of employment with the eligible business which exceeds twice the maximum total compensation received by the officer or employee from the eligible business in calendar year 2019; and (b) no officer or employee of the eligible business whose total compensation exceeded $3,000,000 in calendar year 2019 may receive during any 12 consecutive months of such period total compensation in excess of the sum of (i) $3,000,000; and (ii) 50 percent of the excess over $3,000,000 received by the officer or employee from the eligible business in calendar year 2019.

Section 4008 – Debt Guaranty Authority

Section 4008 of the CARES Act authorizes the Federal Deposit Insurance Corporation (FDIC) to establish a debt guarantee program to guarantee the debt of solvent insured depository institutions and depository institution holding companies.  Pursuant to such program, noninterest-bearing transaction accounts may be treated as a debt guarantee program, provided that any such program shall include a maximum amount of debt that is guaranteed.  This section further extends to the National Credit Union Administration (NCUA) the authority to increase to unlimited the share insurance coverage it provides on any noninterest-bearing transaction accounts to federally insured credit unions.  All such programs shall terminate not later than December 31, 2020.

Section 4009 – Temporary Government In The Sunshine Act Relief

Section 4009 of the CARES Act provides the Board of Governors of the Federal Reserve System (Board) temporary relief from the restrictions imposed by the Government in the Sunshine Act (5 U.S.C. section 552b) (Sunshine Act) with respect to the conduct of its meetings.  The Sunshine Act provides that, subject to specific exemptions, every portion of every meeting of an agency must be open to public observation.  This Section permits the Chairman of the Board to determine that unusual and exigent circumstances exist, under which circumstances the Board may conduct meetings without regard to the requirements of the Sunshine Act.  This relief shall expire on the earlier of the termination date of the National Emergency or December 31, 2020.

Section 4010 – Temporary Hiring Flexibility

Section 4010 of the CARES Act grants temporary hiring flexibility to the Secretary of Housing and Urban Development, the Securities and Exchange Commission and the Commodity Futures Trading Commission to recruit and appoint candidates to fill temporary and term positions within their agencies upon a determination by their respective agency heads that such expedited procedures are necessary to respond to the COVID-19 outbreak.  Such permission shall expire on the earlier of the termination date of the National Emergency or December 31, 2020.

Section 4011 – Temporary Lending Limit Waiver

Section 4011 of the CARES Act grants a temporary lending limit waiver to nonbank financial companies and temporarily permits the Comptroller of the Currency to exempt any transaction from lending limit requirements upon the Comptroller’s determination that such exemption is within the public interest.  The waiver and authority granted by this section shall expire on the earlier of the termination date of the National Emergency or December 31, 2020.

Section 4012 – Temporary Relief For Community Banks

Section 4012 of the CARES Act provides temporary relief to financial institutions that elected to be subject to the Community Bank Leverage Ratio pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).  The Community Bank Leverage Ratio has been described as a regulatory “off ramp” for community banks that wanted to comply with a simplified capital calculation instead of being subject to a Tier 1 Risk-Weighted Assets Ratio and a Total Risk Weighted Assets Ratio.  Pursuant to the EGRRCPA, Bank regulators had announced the Community Bank Leverage Ratio at 9% of Total Assets.  This section of the CARES Act lowers the ratio to 8% and grants a qualifying community bank that falls below the Community Bank Leverage Ratio shall have a reasonable grace period to satisfy it.  The period of time for the lower ratio is from the date banking regulators issue an interim rule through the sooner of the termination date of the National Emergency or December 31, 2020.

Section 4013 – Temporary Relief For Troubled Debt Restructurings

Section 4013 of the CARES Act provides a temporary relief to financial institutions (including credit unions) from GAAP as relates to troubled debt restructurings. Relief is provided for restructurings from March 1, 2020 to the earlier of December 31, 2020 or 60 days after termination of the national emergency.  This section suspends the requirements of GAAP for any loan modification related to the COVID-19 pandemic.  The relief is applicable for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019; and does not apply to any adverse impact on the credit of a borrower that is not related to the COVID–19 pandemic.

Section 4014 – Optional Temporary Relief For Troubled Debt Restructurings

Section 4014 of the CARES Act provides optional temporary relief to financial institutions (including credit unions) from the GAAP impacts of CECL (current expected credit loss) standards.  Specifically, this section provides that no insured depository institution, bank holding company, or any affiliate thereof is required to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016–13 (“Measurement of Credit Losses on Financial Instruments”), including the current expected credit losses methodology for estimating allowances for credit losses, during the period beginning on the date of enactment of this Act and ending on the earlier of the termination date of the National Emergency or December 31, 2020.

Section 4015 – Non-Applicability Of Restrictions On ESF During National Emergency Section 4015 of the CARES Act lifts certain restrictions of the Emergency Economic Stabilization Fund to enable Treasury to establish the Treasury’s previously announced Money Market Stabilization Fund.  This section provides that Section 131 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5236) will not apply during the period beginning on the date of enactment of this Act and ending on December 31, 2020, but provides that any guarantee established as a result of the application of subsection (a) shall—(1) be limited to a guarantee of the total value of a shareholder’s account in a participating fund as of the close of business on the day before the announcement of the guarantee; and (2) terminate not later than December 31, 2020.  This Section contains an appropriation clause that provides that after December 31, 2020 there is appropriated, out of amounts in the Treasury not otherwise appropriated, such sums as may be necessary to reimburse the fund established under section 5302(a)(1) of title 31, United States Code, for any funds that are used for the Treasury Money Market Funds Guaranty Program for the United States money market mutual fund industry to the extent a claim payment made exceeds the balance of fees collected by the fund.

Section 4016 – Temporary Credit Union Provisions

Section 4016 of the CARES Act increases access to the National Credit Union Central Liquidity Facility by (a) broadening the definition of the kinds of credit unions that may access the Facility to all credit unions and not only those serving “natural persons;” and (b) loosening the eligibility requirements in 12 U.S.C. § 1795e(a)(1) for those institutions to receive assistance from the National Credit Union Central Liquidity Facility.

 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes the following provisions of particular interest to members of the consumer financial services industry:

Credit Reporting.  Section 4021 (Credit Protection During COVID-2019) amends the Fair Credit Reporting Act to impose new COVID-19 related reporting requirements on furnishers of information to consumer reporting agencies.  Under Section 4021, if a furnisher (for example, a financial institution that lends money to consumers) makes an accommodation with respect to one or more payments on a credit obligation or consumer account, the furnisher should continue to report the account as current if the consumer fulfills the terms of the accommodation.  However, for accounts that were already delinquent before the accommodation was made, then the furnisher is permitted to continue reporting the account as delinquent unless the consumer brings the account current.  This new reporting requirement does not apply to consumer accounts that have been charged off.  These furnisher responsibilities will apply to reporting on accommodations made to consumer accounts between January 31, 2020 until 120 days after the end of the COVID-19 national emergency.

Higher Education and Student Lending.  The CARES Act contains several provisions related to higher education, some of which pertain to student loan relief, which are described below:

  • Section 3503 (Campus-Based Aid Waivers)
    • The bill creates an exemption for institutions of higher education from matching requirements for various campus-based aid programs for academic years 2019-2020 and 2020-2021. Covered programs include Federal Supplemental Educational Opportunity Grants (SEOGs), for students deemed to have significant financial need, and the Federal Work-Study Program.  However, private for-profit institutions must still pay their share of work-study wages. Unused work-study funds can be applied to SEOGs (but SEOG funds cannot be applied to work-study programs).
  • Section 3504 (Use of Supplemental Educational Opportunity Grants for Emergency Aid)
    • Institutions of higher education may use SEOG funds to assist undergraduate or graduate students for unexpected expenses and unmet financial need, and waive the need calculation requirements under the Higher Education Act (HEA), up to the amount of the maximum Federal Pell Grant for the applicable academic year.
  • Section 3505 (Federal Work-Study During a Qualifying Emergency)
    • Students participating in the Federal Work-Study program can receive work-study wages even if they are unable to work.
  • Section 3506 (Adjustment of Subsidized Loan Usage Limits)
    • If a study does not complete a semester/term due to a qualifying emergency, loans received for that semester will not count toward the total number of terms a student is eligible to receive a subsidized Stafford loan.
  • Section 3507 (Exclusion from Federal Pell Grant Duration Limit)
    • If a study does not complete a semester/term due to a qualifying emergency, Pell Grants received for that semester will not count toward the total number of terms a student is eligible to receive such grants.
  • Section 3508 (Institutional Refunds and Federal Student Loan Flexibility)
    • Requirements applicable to institutions of higher education regarding returning HEA Title IV student aid are waived with respect to students withdrawing as a result of a qualifying emergency.  Similarly, students will not be required to return Pell Grants received.  Moreover, the bill cancels loans for a given term/semester if a student had to withdraw due to a qualifying emergency.
  • Section 3513 (Temporary Relief for Federal Student Loan Borrowers)
    • All payments on federally-held student loans (not commercially held FFELP or private student loans) are suspended through September 30, 2020.
    • During the suspension period, interest shall not accrue on federally held loans.
    • For purposes of federal loan forgiveness and loan rehabilitation programs, payments will be treated as if they were made for each month during the suspension period.
    • Suspended payments must be reported to the credit bureaus as if they were made (thus not reported using forbearance codes).
    • Involuntary collection of loans is suspended during the suspension period.
    • The Secretary of Education is given a timeline to notify borrowers.

 

On March 27, 2020, the Massachusetts Attorney General filed an emergency regulation interpreting the Massachusetts Consumer Protection Act, M.G.L.  Chapter 93A, to address certain practices by creditors and debt collectors that it has determined to be unfair and deceptive under present circumstances.  The regulation, entitled “Unfair and Deceptive Debt Collection Practices During the State of Emergency Caused by COVID-19” (940 CMR 35:00), applies to “creditors” (as defined in 940 CMR 7.03) and “debt collectors” (as defined in the emergency regulation).

The emergency regulation makes it an unfair or deceptive act or practice for creditors and debt collectors, for the 90-day period following the effective date of the regulation or until the State of Emergency expires, to:

  • initiate, file, or threaten to file any new collection lawsuit;
  • initiate, threaten to initiate or act upon any legal or equitable remedy for the garnishment, seizure, attachment, or withholding or wages, earnings, property, or funds for the payment of debt to a creditor;
  • initiate, threaten to initiate, or act upon any legal remedy for the repossession of any vehicle;
  • apply for, cause to be served, enforce, or threaten to apply for, cause to be served or enforce any capias warrant;
  • visit or threaten to visit the household of a debtor at any time;
  • visit or threaten to visit the place of employment of a debtor at any time; or
  • confront or communicate in person with a debtor regarding the collection of a debt in any public place at any time.

Further, the emergency regulation prohibits “debt collectors,” for the 90-day period following the regulation’s effective date or until the State of Emergency expires, whichever occurs first, to initiate a communication with any debtor via telephone, either in person or by recorded audio message to the debtor’s residence, cellular phone, or other telephone number provided as a personal number, provided that the debt collector is not deemed to have initiated a communication if the communication is in response to a request by the debtor for said communication.  The foregoing prohibition does not apply to communications initiated solely for the purpose of informing debtors of rescheduled court appearance dates or discussing convenient dates for same.

Because the definitions of “creditor” and “debt collector” in the emergency regulation are far from models of clarity, a number of industry members, to be conservative, are reading the prohibition on calls by “debt collectors” to also apply to creditors.  This reading is also influenced by Massachusetts’s status as one of the most aggressive consumer protection states in the country and the scope of its collection law, which is the most far-reaching state collection law applicable to creditors of any state (e.g., it requires even creditors to send debt validation notices and provide the mini-Miranda disclosure in all collection communications).  

As a result, the Massachusetts Attorney General’s Office was flooded with comments and questions from the industry last week and we now understand that it plans to issue a series of FAQs to attempt to clear up the scope and intent of the emergency regulation.  Further, the plain language of the call restrictions section should be clarified to make clear that it means what it says – the call restrictions apply only to debt collectors and not creditors.  Indeed, the National Consumer Law Center has interpreted the restrictions this way.  Hopefully, we will have more clarity early next week for everyone.  We will keep you apprised of any further developments.

 

 

In response to New York Governor Cuomo’s Executive Order 202.9 issued on March 21, the New York Department of Financial Services (DFS) has adopted new regulations to provide emergency relief to individuals who can demonstrate financial hardship as a result of COVID-19.  The new regulations were promulgated as Part 119 to Title 3 of the New York Official Compilation of Codes, Rules and Regulations.

In his Executive Order, Governor Cuomo temporarily suspended or modified, for the period from the date of the Executive Order through April 20, 2020, Section 39 of the state’s Banking Law “to provide that it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank which is subject to the jurisdiction of the Department shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic for a period of ninety days.”  The order:

  • Directed the DFS Superintendent to “ensure under reasonable and prudent circumstances that any licensed or regulated entities provide to any consumer in the State of New York an opportunity for a forbearance of payments for a mortgage for any person or entity facing a financial hardship due to the COVID-19 pandemic and …  promulgate emergency regulations to require that the application for such forbearance be made widely available for consumers, and such application shall be granted in all reasonable and prudent circumstances solely for the period of such emergency.”
  • Authorized the Superintendent “to promulgate emergency regulations to direct that, solely for the period of this emergency, fees for the use of automated teller machines (ATMs), overdraft fees and credit card late fees, may be restricted or modified in accordance with the Superintendent’s regulation of licensed or regulated entities taking into account the financial impact on the New York consumer, the safety and soundness of the licensed or regulated entity, and any applicable federal requirements.”

New Part 119 applies to regulated institutions, which are defined as “any New York regulated banking organization as defined under New York Banking Law and any New York regulated mortgage servicer entity subject to the authority of the Department.”  They include the following requirements that apply for the duration of the Executive Order

  • New York regulated institutions must make forbearance applications for any payment due on a residential mortgage of property located in New York “widely available to any individual who resides in New York and who demonstrates financial hardship” as a result of the pandemic and, subject to safety and soundness requirements, must grant such forbearance for a 90-day period.  The requirement does not apply to any mortgage loans “made, insured, or securitized by any agency or instrumentality of the United States, any Government Sponsored Enterprise, or a Federal Home Loan Bank, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.”  (See our alert for more information on the forbearance requirements.)
  • New York regulated banking institutions, for any individual who can demonstrate financial hardship as a result of the pandemic and subject to safety and soundness requirements, must eliminate fees for the use of ATMs owned or operated by the regulated banking institution, eliminate any overdraft fees, and eliminate any credit card late fees.

Regulated institutions are also encouraged to take “additional reasonable and prudent actions” to assist individuals demonstrating financial hardship as a result of the pandemic “in any manner they deem appropriate.”

 

The CFPB, OCC, FDIC, Federal Reserve, and NCUA have issued a joint statement “to specifically encourage” banks, savings associations, and credit unions “to offer responsible small-dollar loans to both consumers and small businesses” in response to the COVID-19 outbreak.  The statement builds on the March 19 statement issued jointly by the OCC, FDIC, and Federal Reserve on Community Reinvestment Act (CRA) consideration for activities in response to the outbreak.  In that statement, the agencies noted that the activities they will favorably consider for CRA purposes could include offering short-term, unsecured credit products for creditworthy low- and moderate-income individuals, small businesses, and small farms.

In the latest statement, the five agencies state that financial institutions can make responsible small-dollar loans under the current regulatory framework through a variety of loan structures “that may include, for example, open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.”  They also encourage financial institutions, for borrowers who experience unexpected circumstances and cannot repay a loan as structured, “to consider workout strategies designed to help enable the borrower to repay the principal of the loan while mitigating the need to re-borrow.”  Financial institutions are cautioned to make loans consistent with safe and sound practices and fair treatment of borrowers and in compliance with applicable statutes and regulations, including consumer protection laws.

While recognizing that consumers can benefit from small-dollar loans “in more normalized times” and indicating that they are working on “future guidance and lending principles for responsible small-dollar loans,” the agencies provide no new guidance for financial institutions to currently use in making small-dollar loans.  In May 2018, the OCC issued a bulletin intended to encourage its supervised institutions to offer small-dollar loans.  That bulletin, however, raised several concerns, namely its failure to confirm that the National Bank Act authorizes national banks to charge the interest allowed by the law of the state where they are located, without regard to the law of any other state and its unfavorable view of bank-nonbank partnerships.

The FDIC published an RFI in November 2018 seeking input on “steps the FDIC could take to encourage FDIC-supervised institutions to offer responsible, prudently underwritten small-dollar credit products that are economically viable and address the credit needs of bank customers.”  However, the FDIC has not yet issued new guidance, and unlike the OCC which has withdrawn its restrictive guidance on deposit advance products, the FDIC has not withdrawn its substantially identical guidance that effectively precludes FDIC-supervised institutions from offering deposit advance products.  Deposit advance products would appear to be precisely the type of product best suited to meet the demands of consumers struggling with the economic fallout of the COVID-19 pandemic.

Given the questions raised by current guidance and the current absence of clear lending principles, financial institutions seeking to engage in small-dollar lending in response to the agencies’ encouragement would be well-advised to consult with counsel and seek guidance from their federal supervisory authorities about how the regulatory admonition to provide more credit will be implemented.  For example, what rates will the agencies view as “responsible”?  Will the agencies relax stringent capital requirements currently in place for sub-prime high-rate loans?  Members of our Consumer Financial Services Group have substantial experience in assisting clients in structuring and implementing small-dollar lending programs and in interacting with the federal banking agencies.

 

On March 26, the American Bankers Association and the Consumer Bankers Association, represented by Ballard Spahr, filed an amicus brief in support of petitions for certiorari asking the Supreme Court to review the Ninth Circuit’s rulings in the Blair v. Rent-A-Center appeals that the Federal Arbitration Act (FAA) does not preempt California’s McGill rule. The amicus brief argues that review should be granted to preserve consumer-friendly procedures for resolving disputes and to ensure that courts uniformly apply the FAA as interpreted by the Court in decisions such as Epic Systems Corp. v. Lewis, AT&T Mobility, LLC v. Concepcion and Lamps Plus, Inc. v. Varela.

The petitions for certiorari, filed on February 27, argue that the McGill rule is inconsistent with fundamental precepts of the FAA and is outside the boundaries of the FAA’s savings clause. It is possible that the Court will rule on the petitions before recessing at the end of June.

We will keep you updated.

In this week’s podcast, we are joined by Richard Cordray whose book about his CFPB tenure, Watchdog, was recently-released.  Among other topics, Mr. Cordray shares what he considers to be his key successes and disappointments as Director, describes his relationship with the Trump Administration, responds to criticism of his use of the CFPB’s enforcement authority, offers his prediction for how SCOTUS will rule in Seila Law, and discusses the abusiveness standard and creation of state mini-CFPBs.

Click here to listen to the podcast.

The CFPB has issued its annual Fair Debt Collection Practices Act report covering the CFPB’s and FTC’s activities in 2019.

With regard to the CFPB’s debt collection rulemaking, in her opening message, Director Kraninger only references the Bureau’s May 2019 proposal.  She does not mention the Bureau’s supplemental proposal issued last month that would require debt collectors to make specified disclosures when collecting time-barred debts.  With regard to the May 2019 proposal, Director Kraninger states that “[t]he Bureau intends to issue a final debt collections rule in 2020.”  (The supplemental proposal is mentioned in the section of the report that describes the Bureau’s rulemaking but gives no timetable for a final rule.)

In addition to a description of the FDCPA-related findings from the Bureau’s Summer 2019 and Winter 2020 Supervisory Highlights, the report includes the following information:

  • According to the report’s section on complaints, the CFPB handled approximately 75,200 debt collection complaints in 2019 (which was 6,300 (approximately 8%) less than in 2018).  As in 2018, the most common complaint was about attempts to collect a debt that the consumer claimed was not owed (but with more such complaints involving identity theft than in 2018).  The second and third most common complaint issues were, respectively, written notifications about the debt, and taking or threatening a negative or legal action.
  • In 2019, the CFPB announced three FDCPA enforcement actions.  One of those actions resulted in a consent order and the other two actions are still pending.  One pending action was filed in September 2019 against a debt collection company and its owner for alleged FDCPA violations in connection with the handling of direct and indirect disputes.  The other pending action was filed in May 2019 against a debt collection law firm for alleged FDCPA violations based on an alleged lack of “meaningful attorney involvement.”  In addition to the action that resulted in a consent order, the report states that in 2019, the Bureau resolved an FDCPA lawsuit filed in 2016 and obtained settlements with three defendants in a lawsuit filed in 2015 that is still pending.  The Bureau reports that these matters resulted in judgments for nearly $50 million in consumer redress and $11.2 million in civil money penalties.  The Bureau also permanently banned eight individuals from working in the debt collection industry.  The Bureau states that, in addition to its three pending enforcement actions, it “is conducting a number of non-public investigations of companies to determine whether they engaged in collection practices that violate the FDCPA or CFPA.”

The CFPB’s report incorporates information from the FTC’s most recent annual letter to the CFPB describing its FDCPA activities.  In 2019, the FTC brought or resolved law enforcement actions against 25 defendants, obtained more than $24.7 million in judgments, and permanently banned 23 companies and individuals from working in the debt collection industry.  Three of the enforcement actions resolved in 2019 (including one that was filed in 2019) involved “phantom debt collection.”  In addition to the actions involving “phantom debt collection,” the report describes two other FTC debt collection cases.  One of these cases involved a debt collection business that allegedly falsely threatened to have people arrested if their debts were not paid.  The case was settled in 2018 and refund checks totaling more than $516,000 were sent to consumers in 2019.  Litigation remained ongoing in 2019 in the other case, which was filed jointly in 2018 with the New York Attorney General and involves alleged demands by the defendants for more money than consumers owed.

On March 13, following the declaration of a state of emergency by Nevada Governor Sisolak due to the COVID-19 outbreak, the state’s Department of Business and Industry (DBI) issued guidance that allowed collection agency employees to work from their residences even if a residence was not a location licensed with the DBI.  However, on March 20, in response to Governor Sisolak’s order requiring the closing of all businesses deemed “non-essential,” the DBI issued a letter that deemed all Nevada-licensed collection agencies to be “non-essential” and ordered all collection agencies holding a Nevada license located in the state “to close” effective midnight March 20 until April 16.  The DBI also directed all collection agencies holding a Nevada license or certificate (regardless of the whether the licensee is located in-state or out-of-state) to “cease collection efforts with Nevada consumers/residents” effective midnight March 20 until April 16.

We are currently working with collections industry clients to address the many questions that have arisen regarding what, if any, activities continue to be permissible while the DBI’s “cease collection efforts” directive remains in effect.