The CFPB has issued a policy statement to clarify the Dodd-Frank Act’s abusiveness standard.  The policy statement, which is applicable as of January 24, 2020, states that it describes “certain aspects of how [the Bureau] intends to approach its use of the abusiveness standard in its supervision and enforcement matters going forward.”

In the Supplementary Information accompanying the policy statement, the Bureau states that it concluded that uncertainty as to the scope and meaning of the abusiveness standard is creating significant compliance challenges for businesses.  Such challenges, the Bureau observes, “can impose substantial costs, including impeding innovation” and, as a result, “consumers may lose the benefits of improved products and services and lower prices.”

The Dodd-Frank Act provides that, to be declared abusive, an act or practice must: (1) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service, or (2) take unreasonable advantage of (a) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, (b) a consumer’s inability to protect his or her interests in selecting or using a consumer product or service, or (c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

The policy statement contains the following three components:

  • Cost/benefit analysis.  The Bureau will “focus in citing conduct as abusive in supervision and challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers (including its effects on access to credit).”  The Bureau believes this focus will not only ensure consistency in its supervisory and enforcement decisions but will also ensure “that the Bureau is committed to using its scarce resources to address conduct that causes harm to consumers.”
  • Citing or pleading abusiveness violations.   Where an enforcement matter presents “a single course of conduct that could provide the factual basis for allegations of unfair, deceptive, or abusive acts or practices,” the Bureau will generally “avoid alleging an abusiveness violation that relies on all or nearly all the same facts as an unfairness or deception violation.”  It will nevertheless allege “stand-alone” abusiveness violations “where doing so would be consistent with the abusiveness standard and this Policy Statement.”  Where “stand-alone” abusiveness violations are alleged, the Bureau “will plead such claims in a manner designed to demonstrate clearly the nexus between the cited facts and the Bureau’s legal analysis of the claims.”  In the supervisory context, the Bureau intends to apply the same approach as it uses for pleading abusiveness in enforcement actions, and in future editions of Supervisory Highlights, it will “describe the basis for abusiveness citations with greater clarity.”
  • Monetary relief.  The Bureau generally will not “seek monetary remedies for abusive acts or practices if the covered person made a good-faith effort to comply with the law based on reasonable—albeit mistaken—interpretation of the abusiveness standard.”  In the supervisory context, the Bureau “will apply the same standard when requesting action as a result of violations in Matters Requiring Attention or other supervisory requests.”  When a business has made a “good-faith but unsuccessful” compliance effort, the Bureau will still “seek legal or equitable remedies, such as damages and restitution” but, “absent unusual circumstances,” will not seek civil penalties or disgorgement.  In determining if a business made a good-faith compliance effort, the Bureau will consider “all relevant factors, including but not limited to the considerations outlined in CFPB Bulletin 2013-06 regarding Responsible Business Conduct.”  For purposes of the policy statement, a “reasonable” interpretation “is one based on the text of the abusiveness standard set forth in the Dodd-Frank Act, as well as prior precedent and guidance, including judicial precedent, the Bureau’s administrative decisions, rulemakings, supervisory guidance, and past allegations of abusive acts or practices in public enforcement actions.” (Released in June 2013, Bulletin 2013-06 was intended to describe the sorts of “responsible conduct” that might lead the Bureau to be more lenient in the context of an enforcement investigation.)

Although it elected to use a policy statement to clarify the meaning of abusive, the Bureau indicated in the Supplementary Information that it “does not foreclose the possibility of engaging in future rulemaking to further define the abusiveness standard.”

Although the policy statement is a helpful step in the right direction in giving industry some idea of how abusiveness may be applied in the future, we believe that its practical impact will be very limited.  The Bureau has not frequently relied on abusiveness as the sole reason for enforcement of supervisory actions, and nothing in the policy statement will alter the manner in which the Bureau evaluates allegedly unfair or deceptive conduct.  Moreover, even for conduct labeled abusive, the policy statement prescribes essentially subjective, judgmental decisions to be made by Bureau personnel (for example, weighing consumer harm and benefit, or whether a company was acting in “good faith”), which provide little restriction on the Bureau, and therefore little guidance to industry.  So, we believe the policy statement will have little practical impact on the Bureau’s supervisory and enforcement behavior.


The CFPB published a policy statement in today’s Federal Register to announce that, going forward, it is establishing a new “Compliance Aids” designation for certain Bureau guidance.  The policy statement becomes applicable on February 1, 2020.

In the Supplementary Information accompanying the Policy Statement, the Bureau gives examples of compliance resources it has previously released.  These examples are “small entity compliance guides, instructional guides for disclosure forms, executive summaries, summaries of regulation changes, factsheets, flow charts, compliance checklists, frequently asked questions, and summary tables.”

The policy statement indicates that the new “Compliance Aids” designation will be used for “materials that are similar to previous compliance resources.”  The designation is intended to provide “greater clarity regarding the legal status and role of these materials.”  The policy statement indicates that:

  • The Bureau will not use Compliance Aids “to make decisions that bind regulated entities.”
  • Compliance Aids, “unlike the Bureau’s regulations and official interpretations,” are not “rules” under the Administrative Procedure Act.  (The Bureau states that the three main categories of “rules” are “substantive rules, interpretive rules, and general statements of policy.”
  • Compliance Aids are intended to provide assistance to compliance professionals and others in understanding existing legal requirements (statutes and regulations) and may include suggestions for how to comply with such requirements.
  • Regulated entities are not required to comply with the Compliance Aids themselves, only with the underlying statutes and regulations.
  • When exercising its enforcement and supervisory discretion, the Bureau will not sanction, or ask a court to sanction, entities that reasonably rely on Compliance Aids.

The Bureau states that the policy statement “does not alter the status of materials that were issued before this policy statement, although the Bureau may reissue certain materials as Compliance Aids if it is in the public interest and as Bureau resources permit.”



As previously reported, in October 2019 the CFPB issued a final rule under the Home Mortgage Disclosure Act (HMDA) to:

  • Continue until January 1, 2022 the temporary volume threshold that triggers reporting of open-end, dwelling-secured lines of credit of at least 500 originated lines of credit in each of the prior two calendar years.
  • Incorporate into Regulation C the interpretative and procedural rule previously issued by the CFPB to implement the partial exemption from HMDA reporting for smaller volume bank and credit union lenders adopted in the Economic Recovery, Regulatory Relief, and Consumer Protection Act (Growth Act).

The CFPB recently issued a revised version of the Home Mortgage Disclosure (Regulation C) Small Entity Compliance Guide to incorporate the changes made in the October rule.

On December 18, 2019, the New York Department of Financial Services (DFS) issued its Final Regulations detailing the business conduct rules for mortgage loan servicers. Originally proposed on April 12, 2019, these Final Regulations revise the existing mortgage servicing regulations in Part 419 of the Superintendent’s Regulations, which were adopted on an emergency basis, (the “Emergency Regulations”).

The Final Regulations largely mirror the content as proposed (the “Proposed Regulations”), and include significant new requirements and variances from both the Emergency Regulations in Part 419, and from federal servicing requirements. These regulations will require implementation of additional New York-specific communications and servicing procedures.

We also note the broad definition of “servicing mortgage loans” stated below, which includes originators or note holders that also hold mortgage servicing rights. Such parties should pay particular attention to the service provider oversight and affiliated business arrangement requirements included in the Final Regulations.

We outline certain provisions from the Final Regulations below, with greater detail provided for the more notable aspects.

Effective Date

The Final Regulations are effective immediately upon the adoption date of December 18, 2019. However, the Final Regulations allow for a 90-day “transition period” (until March 17, 2020) during which a servicer does not violate the Final Regulations if it otherwise acts in compliance with the existing Emergency Regulations in Part 419.


As with the Emergency Regulations, the Final Regulations define a “servicer”, that is subject to these requirements, to include those that are exempt from the state licensing requirement. The Final Regulations further define the activity of “servicing mortgage loans” as follows:

“[R]eceiving any scheduled periodic payments from a borrower pursuant to the terms of any mortgage loan, including amounts for escrow accounts under Section 6-k of the Banking Law, Title 3-A of Article IX of the Real Property Tax Law or of RESPA of 1974 as amended (12 USC 2609), and making payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage loan documents or servicing contract. In the case of a home equity conversion mortgage or reverse mortgage as referenced in Section 6-h of the Banking Law, Sections 280 and 280-a of the Real Property Law or 24 CFR 3500.2, servicing includes making payments to the borrower. The term includes a Person who makes or holds a mortgage loan if such Person also directly or indirectly is the holder of the mortgage servicing rights or has been delegated servicing functions for the Mortgage Loan.” § 419.1(m) (emphasis added)

Escrow Accounts (§ 419.2)

As required under Regulation X, the Final Regulations specify that if a servicer advances funds to pay an escrow disbursement, and it is not the result of a borrower’s payment default, then the servicer shall conduct an escrow account analysis to determine the extent of the deficiency. However, the Final Regulations further provide that the servicer must then provide a written explanation to the borrower and must wait 30 days after providing the explanation before seeking repayment of the funds necessary to correct the deficiency.

Payment Crediting (§ 419.3)

The Final Regulations include various payment crediting provisions, covering topics such as reasonable payment requirements, non-conforming payments, and late payments. These provisions largely mirror those already imposed by the Emergency Regulations in New York.

Periodic Statements (§ 419.4)

The Final Regulations include requirements for mortgage periodic statements. These provisions generally conform to those in Regulation Z, however, there are some differences. For example, the following requirements are notable for loans that are 45 days or more delinquent:

  • The Final Regulations provide that the statement must include the date on which the borrower became delinquent, whereas 12 CFR § 1026.41(d)(8)(i) (and the associated sample forms published by the CFPB) requires that the statement include the length of the consumer’s delinquency.
  • Instead of requiring a notice of whether the first notice or filing for foreclosure has been made, the New York Final Regulations require a notice of whether the servicer “has fulfilled the pre-foreclosure notice requirements of Real Property Actions and Proceedings Law section 1304 or Uniform Commercial Code section 9-611(f), if applicable”.
  • Instead of simply providing the total payment amount needed to bring the account current, as required by Regulation Z, the New York Final Regulations require a “breakdown of the total payment amount needed to bring the account current, including a detailed breakdown of the actual fees and charges claimed, as well as, a date upon which the payment amount specific will expire and no longer be sufficient to bring the account current.”

Fees (§ 419.5)

As with the existing Emergency Regulations, the Final Regulations include a requirement that servicers publish, and make available upon request, a schedule of servicing fees. Notably, unlike the Proposed Regulations, the Final Regulations will continue permit a servicer to include a range of amounts for a particular fee.

The provision regarding Attorneys’ Fees found in the existing Emergency Regulations, has been amended in a couple of notable ways. First, the provision removes the restriction that expressly references attorneys’ fees in connection with foreclosure actions, but incorporates the restrictions in Civil Practice Law and Rules § 3408(h). Second, the provision adds the following restrictions with respect to attorneys’ fees charged in connection with a loss mitigation option, reinstatement, or loan satisfaction: (1) that the fee must be reasonable and customary for work that is actually performed by an attorney; and (2) that the fee and a breakdown of the tasks performed must be disclosed to the borrower prior to entering into the agreement governing the loss mitigation option, reinstatement or loan satisfaction. We note that the part requiring a “breakdown of the tasks performed” was not included in the Proposed Regulations.

Regarding late fees, the Final Regulations add to the Emergency Regulations with a new restriction that late fees not be charged if a borrower is making timely trial payments. The Final Regulations also add an exemption from the 2% late fee cap for “loans or forbearances insured by the federal housing commissioner or for which a commitment to insure has been made by the federal housing commissioner or to any loan or forbearance insured or guaranteed pursuant to the provisions of an act of congress entitled ‘Servicemen’s Readjustment Act of 1944’”.

A new provision covering Property Valuation Fees is added, which prohibits a servicer from charging a property valuation fee more than once during a 12 month period. However, a servicer may charge a reasonable fee for a property valuation, in order to facilitate a borrower’s loss mitigation application, if the servicer has already provided, without charge, one property valuation within preceding 12-month period.

Borrower Complaints and Inquiries (§ 419.6)

The provisions regarding borrower complaints and inquiries largely follow the existing provisions found in Section 419.4. However, the Final Regulations add procedures for handling borrower complaints, that are generally analogous to those found in Regulation X (i.e., a written acknowledgment of a complaint within 5 days, and a response within a certain number of days, depending on the nature of the complaint), but which include some notable differences.

The Final Regulations expressly provide that the 5-day acknowledgement letter for a complaint must: (1) inform the borrower of any additional information or documentation required by the servicer to review and address the complaint; and (2) if applicable, inform the borrower that the complaint has been reassigned to the borrower’s single point of contact or escalated to a supervisor.

For complaints involving either the commencement of a foreclosure in violation of Section 419.10, or moving for a foreclosure judgement/order of sale, or conducing a foreclosure sale in violation of Section 419.10, the response must be provided by the earlier of: (1) prior to the foreclosure sale; or (2) 15 business days after receipt of the complaint. We note that the analogous provisions in Regulation X require a response either before the sale, or within 30 business days after receipt of the Notice of Error.

The provision for extending the general 30-day response time frame also deviates from the analogous provisions in Regulation X. Under the Final Regulations, a servicer can extend the general 30-day response time frame by only 7 business days, as opposed to 15 business days under 12 CFR § 1024.35(e)(3)(ii).

Finally, the Final Regulations include a general requirement that servicers have a process that enables borrowers to escalate complaints or pending loss mitigation matters for a supervisory level review.

We also note that the Final Regulations, unlike the Notice of Error provisions in Regulation X, do not include express exemptions from the procedures for complaints that are duplicative, overbroad, or untimely.

Residential Mortgage Loan Delinquencies and Loss Mitigation Efforts (§ 419.7)

The Final Regulations include in this section a variety of delinquent loan servicing and loss mitigation requirements. The existing requirement that servicers make reasonable and good faith efforts to pursue loss mitigation options, in order to avoid foreclosure, has been amended to reference the need for conformity with Civil Practice Laws & Rules § 3408.

Single Point of Contact

The section includes requirements for assigning a single point of contact (SPOC) to delinquent borrowers, which are similar to the federal rules. However, there are some notable differences. For example, the Final Regulations provide that the SPOC must be assigned to any borrower who is at least 30 days delinquent (or who has requested a loss mitigation application), as opposed to 45 days delinquent under Regulation X.

Late Payment Notice

The Final Regulations retain the 17-day late payment notice requirement found in the existing Emergency Regulations, as well as the exemption for debtors in bankruptcy.

Early Intervention Notice

The Final Regulations include an Early Intervention Notice requirement, which largely conforms to the federal requirements in Regulation X. However, the 45-day Early Intervention Notice requirement in the Final Regulations include additional content that must be provided in the notice, such as information regarding “the servicer’s loss mitigation protocols”, the nature and extent of the delinquency, and contact information for the DFS Consumer Assistance Unit. The Final Regulations also include an exemption from the requirement while any borrower on a particular mortgage loan is a debtor in bankruptcy.

Loss Mitigation Procedures

The Final Regulations include loss mitigation procedural requirements, similar to those in Regulation X. However, the New York regulations include some notable requirements that differ or go beyond those required under federal law, certain of which we outline below.

  • Loss Mitigation Acknowledgment Letters – The 5-day acknowledgement letter, sent after receipt of a loss mitigation application, must include information beyond that required in Regulation X. While certain of this additional content is already required by the New York Emergency Regulations, there are some new inclusions in these Final Regulations. Notably, the Final Regulations provide that, if the application is incomplete, the acknowledgment letter must “[s]tate the action that the servicer will take if the borrower does not submit the documents or information necessary to make the loss mitigation application complete within the [reasonable date] time period specified in the letter.” This provision is notable because the CFPB has clarified, through webinars and other guidance, that the “reasonable date” disclosed in the 5-day loss mitigation acknowledgement letter is merely a suggested timeframe, as opposed to a hard deadline after which the application is denied. Servicers should take care in drafting this language, in light of the CFPB’s guidance regarding the effect of the “reasonable date” by which borrowers are told to return any missing information.
  • Loss Mitigation Denial Review – Regarding the evaluation process for loss mitigation, the Final Regulations provide that, within the 30-day time frame for evaluating a complete application received more than 37 days before a foreclosure sale, the servicer must review “any initial determination to deny a loss mitigation option” (note this is not expressly limited to loan modifications). This review must be performed by supervisory personnel that were not involved in making the initial determination.
  • Incomplete Application Evaluation – As with the Regulation X loss mitigation procedures, the Final Regulations permit a servicer to evaluate a borrower for loss mitigation, based on an incomplete application, in certain circumstances. However, the Final Regulations differ from Regulation X by providing a hard threshold of 30 days, during which the application remained incomplete without borrower progress, despite the servicer’s reasonable diligence. We note that Regulation X contemplates varying timeframes, depending on the circumstances, which may be shorter than 30 days.
  • Loss Mitigation Offers – As with the existing New York Emergency Regulations, the Final Regulations require additional content in a loss mitigation offer letter, beyond that required under Regulation X (e.g., a statement of the “material terms, costs and risks” of the option offered). However, the Final Regulations go even further, requiring that the offer letter include: (1) changes to the terms of the mortgage loan, to the extent the changes are known to the servicer after due diligence by the servicer at the time of the notice; (2) a breakdown of the loan balance and an itemization of any fees or charges assessed; and (3) any amounts capitalized and applied to the balance of the mortgage loan.
  • Loss Mitigation Denial – As with the existing New York Emergency Regulations, the Final Regulations provide that a loss mitigation denial letter must specify the reasons for denial for all loss mitigation options (as opposed to Regulation X only requiring only requiring a statement of denial reasons for a denied loan modification), and to include certain disclosure language in bold.
  • Borrower Response to Loss Mitigation Offer – The Final Regulations further differ from Regulation X, by providing that if a complete loss mitigation application was received 90 days or more before a foreclosure sale, the servicer must allow the borrower at least 30 days to accept or reject the offer. Regulation X provides a 14-day acceptance/rejection time frame in the same scenario.
  • Appeals – The appeal process in the Final Regulations generally aligns with that under Regulation X. However, the New York Final Regulations grant appeal rights for the denial of “any loss mitigation option”, as opposed to being limited to loan modification denials under federal law.

Reporting Requirements and Books and Records (§§ 419.8 and 419.9)

Additional provisions covering the quarterly and annual servicing reports, and books and record keeping, are included in the Final Regulations. While many of these provisions already exist in the Emergency Regulations, there are some minor changes in these Final Regulations.

Servicing Prohibitions and the Duty of Fair Dealing (§ 419.10)

The Final Regulations include a variety of additional servicing requirements, certain of which already exist under the New York Emergency Regulations. However, several new requirements are added, which also deviate from applicable federal requirements in certain respects.

Dual-Tracking Prohibitions

The Final Regulations include new “dual-tracking” type prohibitions, which restrict the foreclosure process in light of loss mitigation requirements.

  • Complete Application Received Prior to Commencing Foreclosure – The Final Regulations provide that a servicer is prohibited from commencing foreclosure, if the borrower submits a complete loss mitigation application before the servicer has commenced a residential foreclosure action against the borrower, unless: (1) the servicer has sent the borrower notice that he/she is not eligible for any loss mitigation option, and the appeal process has been exhausted; (2) the borrower rejects all loss mitigation options offered; (3) the borrower is more than 30 days in default under a trial or permanent modification agreement; or (4) the foreclosure is based on a violation of a due on sale clause. We note that the exception above for a borrower failing to perform under a loss mitigation option is limited to trial and permanent loan modifications, whereas the similar provision in Regulation X provides that foreclosure may proceed if the borrower fails to perform under any agreed upon loss mitigation option.
  • Incomplete Application Received Prior to Commencing Foreclosure – The Final Regulations prohibit a servicer from commencing foreclosure, if the borrower submits an incomplete loss mitigation application before the servicer has commenced foreclosure, unless the borrower fails to provide the outstanding information or documentation within 15 business days after the servicer sends the incomplete loss mitigation application acknowledgement letter. However, this this protection must only be applied once, for a single incomplete loss mitigation application on a borrower’s loan.
  • Foreclosure Sale Restrictions – The Final Regulations prohibit a servicer from moving for judgment of a foreclosure and sale, or conducting a foreclosure sale, when:
    • The borrower is in compliance with a trial loan modification, forbearance plan, or repayment plan;
    • A short sale, or deed-in-lieu of foreclosure has been approved by all parties (including, for example, first lien investor, junior lien holder and mortgage insurer, as applicable), and proof of funds or financing has been provided to the servicer; or
    • A borrower has submitted a complete loss mitigation application more than 37 days before a foreclosure sale, unless; (1) the servicer has sent the borrower notice that he/she is not eligible for any loss mitigation option, and the appeal process has been exhausted; (2) the borrower rejects all loss mitigation options offered; or (3) the borrower is more than 30 days in default under a trial or permanent modification agreement.

Good Faith and Fair Dealing

The Final Regulations incorporate existing language from New York’s Emergency Regulations, regarding good faith and fair dealing in connection with servicing loans and evaluating borrower for loss mitigation. However, the Final Regulations assert an affirmative duty for servicers to structure loan modifications that result in payments that are reasonably affordable and sustainable for the borrower at the time the modification is made.

Third Party Service Provider Oversight (§ 419.11)

The Final Regulations include detailed requirements for oversight of “third party providers”. The term “third party providers” is defined as “any person or entity retained by or on behalf of the servicer, including, but not limited to, foreclosure firms, law firms, foreclosure trustees, and other agents, independent contractors, subsidiaries and affiliates, that provides insurance, foreclosure, bankruptcy, mortgage servicing, including loss mitigation, or other products or services, in connection with the servicing of a mortgage loan.”

The Final Regulations require that servicers adopt and maintain policies and procedures covering the following requirements and measures:

  • The servicer must perform due diligence of third party providers’ qualifications, expertise, capacity, reputation, complaints, information systems, document custody practices, quality assurance plans, financial viability, and compliance with licensing requirements and applicable rules and regulations.
  • The servicer must require compliance with the servicer’s applicable policies and procedures and applicable New York and Federal laws and rules.
  • The servicer remains responsible for all actions taken by a third party provider on the servicer’s behalf.
  • The servicer must clearly and conspicuously disclose to borrowers if it utilizes a third-party provider and shall clearly and conspicuously disclose to borrowers that the servicer remains responsible for all actions taken by third-party providers.
  • The servicer must conduct periodic reviews, at least annually, of each third-party provider the servicer retains. Further, the Final Regulations specify: (1) that the review must be conducted by servicer employees, who are separate and independent of the employees who prepare foreclosure or bankruptcy affidavits, sworn documents, declarations, or other foreclosure or bankruptcy documents; and (2) the type of information that must be reviewed, such as sample foreclosure and bankruptcy documents, permissible fees, and customer complaint information.
  • The servicer must ensure that: (1) third party providers have appropriate and reliable contact information for servicer employees who possess information relevant to the services provided by the third-party provider; and (2) foreclosure and bankruptcy counsel have an appropriate servicer contact to assist in legal proceedings and to facilitate loss mitigation questions on behalf of a borrower.
  • The servicer must take appropriate remedial action against a third party provider, in light of any problems discovered through reviews or other findings.
  • The servicer must detail how it will oversee and communicate with foreclosure counsel and trustees, including certain specific requirements.

Servicing Transfers (§ 419.12)

The Final Regulations include provisions governing loss mitigation and other communications in the context of a servicing transfer. Notably, a transferee servicer is required to provide a copy of the servicer’s welcome packet, and a payment history complying with section 419.4 of the Final Regulations, along with the first periodic statement sent post-transfer.

Regarding loss mitigation, the Final Regulations address trial modifications plans in effect during the servicing transfer, and consideration of the borrower for loss mitigation in light of a denial decision made by the transferor servicer.

Affiliated Relationships (§ 419.13)

Significantly, the Final Regulations include affiliated business arrangement disclosure and compensation requirements, similar to those in RESPA, for servicing relationships. The term “affiliated relationship” is defined as “a relationship between two or more entities where one such entity, directly, or indirectly, through one or more intermediaries, controls, or is controlled by or is under common control with another such entity.” The Final Regulations include the following requirements:

  • Within 10 days of entering into an affiliated relationship, servicers must provide to each borrower whose mortgage loan is subject to such arrangement, a written disclosure of the nature of the relationship (explaining the ownership and financial interest) between the parties to the arrangement and of an estimated charge or range of charges generally made by such affiliate.
  • All affiliated relationships must be negotiated at market rate. Servicers may neither give nor accept any fee, kickback or other thing of value pursuant to any affiliated relationships, other than:
    • Payments listed in section 419.5 of the Final Regulations (the provisions covering fees, discussed above);
    • A return on ownership interest, that does not include: (1) any payment which has as a basis of calculation no apparent business motive other than distinguishing among recipients of payments on the basis of the amount of their actual, estimated or anticipated referrals; (2) any payment which varies according to the relative amount of referrals by the different recipients of similar payments; (3) a payment based on an ownership, partnership or joint venture share which has been adjusted on the basis of previous relative referrals by recipients of similar payments;
    • Bona fide dividends, and capital or equity distributions, related to ownership interest or franchise relationship, between entities in an affiliate relationship; or
    • Bona fide business loans, advances, and capital or equity contributions between entities in an affiliate relationship (in any direction), so long as they are for ordinary business purposes and are not fees for the referral of settlement service business or unearned fees.

These provisions covering affiliated relationships are in particular need of clarification from the DFS. The provisions were drafted in an overly broad manner, and lead to unintended consequences. For example, there is a general restriction that all affiliated relationships be negotiated at market rate, without regard to what any associated services entail. We hope that it is not the intent of the DFS to prohibit two affiliated companies from entering into any type of agreement, with terms that are more favorable than an agreement with a third party. It is also unclear as to what circumstances cause a particular loan to be “subject to” an affiliated relationship, for purposes of the disclosure requirement. As drafted, such a restriction could be interpreted to apply to general IT or payroll services provided by the parent company of a mortgage servicer.

Amicus briefs have been filed in the U.S. Supreme Court in support of Paul Clement, who was appointed amicus curiae by the Court to defend the Ninth Circuit’s ruling in Seila Law that the CFPB’s structure is constitutional.  (Amicus briefs were filed last month in support of Seila Law and the CFPB.)

In his brief filed last week, Mr. Clement argued as an initial matter that the Court should conclude that the dispute over the Bureau’s constitutionality does not satisfy Article III jurisdiction requirements because Seila Law has not suffered an injury that is traceable to the constitutionality question.  He also argued that the dispute does not satisfy prudential considerations of ripeness.  Mr. Clement argued in the alternative that if the Supreme Court does reach the constitutionality question, it should hold that the Dodd-Frank Act’s “for cause” removal provision is constitutional.

All of the amici (with one exception) support Mr. Clement’s position that the CFPB’s structure is constitutional.  (The one exception is John Harrison of University of Virginia School of Law who takes no position on the merits but recommends that the Supreme Court avoid the constitutionality question on the grounds of ripeness by first addressing severance.  According to Professor Harrison, Seila Law’s “claim [to relief] rests on severability; [it] alleges that the removal restriction, to which it is not subject, is unconstitutional, not that the agency’s investigative power, to which it is subject is unconstitutional.”  In his view, if the Court “finds the CFPB’s investigative authority to be severable from the removal restriction, [Seila Law] will not be entitled to relief, whether or not the removal restriction is unconstitutional.”)

Several of the amici, as indicated below, also address whether the Dodd-Frank Act’s “for cause” removal provision is severable if there is a constitutional violation and argue that the provision is severable.  In addition, three “Financial Regulation Scholars” (consisting of the professors named below) argue that although the CFPB’s structure is constitutional, because there is no genuine controversy between a President and an appointee about a “for cause” removal provision, the Supreme Court should dismiss certiorari as improvidently granted.  In the alternative, they argue it should affirm the Ninth Circuit’s judgment or “remand the case to the lower courts to render a holistic analysis of the design features of the CFPB.”

The amici consist of the following:

  • State attorneys general and federal lawmakers
    • A group of 24 Democratic state attorney generals and the D.C. attorney general (Amici also argue severance would be the appropriate remedy for a constitutional violation.)
    • A group of 24 current and former Democratic U.S. Congressmen and Senators
    • Democratic U.S. Senators Sheldon Whitehouse, Richard Blumenthal, and Mazie Hirono
    • U.S. House of Representatives  (The House filed a separate motion seeking to participate in the oral argument.)
  • Public interest and consumer advocacy groups
    • National Consumer Law Center, Center for Consumer Law and Education, Center for Consumer Law and Economic Justice, Consumer Action, Yale Law School Housing Clinic, and Craig Cowie of the University of Montana Alexander Blewitt III School of Law (Amici also argue severance would be the appropriate remedy for a constitutional violation.)
    • Public Citizen, Americans for Financial Reform Education Fund, Consumer Federation of America, Consumer Reports, National Association of Consumer Advocates, Tzedek DC, and U.S. Public Interest Research Group Education Fund, Inc.
  • Academics
    • Martin S. Lederman and David C. Vladeck of Georgetown University Law School
    • Harold H. Bruff of University of Colorado Law School, Jessica Bulman-Pozen, Gillian Metzger and Peter L. Strauss of Columbia Law School, Jerry L. Mashaw of Yale Law School, Anne Joseph O’Connell of Stanford Law School, Peter M. Shane of Ohio University Moritz College of Law, and Paul R. Verkuil of the College of William & Mary
    • John Harrison of University of Virginia Law School
    • Rachel E. Barkow, Kirti Datla, and Richard L Revesz of New York University School of Law and Robert B. Thompson of Georgetown University Law School
    • Financial Regulation Scholars: Adam J. Levitin of Georgetown University Law School, Patricia A. McCoy of Boston College Law School, and Peter Conti-Brown of the Wharton School of the University of Pennsylvania
  • Other groups
    • Main Street Alliance
    • Project on Government Oversight and Morton Rosenberg (former Congressional Research Service analyst)
    • Self-Help Credit Union, Hope Credit Union, Hope Enterprise Corporation, National Association of Latino Community Asset Builders, and Inclusiv (Amici also argue severance would be the appropriate remedy for a constitutional violation.)

All of the amicus briefs are available here.

In this podcast, after reviewing what redlining is, we look at which regulators have made it a focus, factors they consider when looking for redlining, whether those factors apply to nonbanks and how nonbanks can assess and reduce risk.  We also discuss emerging theories of digital redlining.

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Earlier this month, in Buchholz v. Meyer Njus Tanick, P.A., the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s decision that a plaintiff who alleged that the defendant had violated the Fair Debt Collection Practices Act (“FDCPA”), failed to allege a concrete injury in fact sufficient to confer Article III standing. The plaintiff alleged the defendant law firm violated the FDCPA by sending him two letters regarding overdue payments he owed on two accounts.  The plaintiff alleged that the law firm processed such a high volume of debt collection correspondence that its attorneys could not engage in a meaningful review of underlying accounts even though the letters created the impression that an attorney had reviewed the file.

The plaintiff further alleged that he suffered anxiety from reading the letters and from fearing litigation.  The Sixth Circuit rejected plaintiff’s argument that he had standing to sue. The plaintiff did not dispute the accuracy of the information in the letters or that he owed the debts.  The Court found that because the plaintiff had not alleged that the letters threatened litigation or that he had refused to pay the past due amounts owed, the alleged harm was speculative and the letters did not cause any actionable harm that would constitute a procedural violation under the U.S. Supreme Court’s decision in Spokeo and his “self-inflicted injury” did not create standing.  Accordingly, the Sixth Circuit found that the district court had properly dismissed the complaint for lack of Article III standing.

On the flip side, in Bultemeyer v. CenturyLink, Inc., the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s finding that the plaintiff lacked Article III standing to bring a lawsuit alleging that the defendant violated the Fair Credit Reporting Act by obtaining her credit report without a permissible purpose and without the required authorization.  The district court found that the plaintiff failed to demonstrate a concrete injury in fact sufficient to satisfy Article III standing under Spokeo and dismissed her claim. The District Court determined that the defendant “did nothing with the information that would harm” the plaintiff and found that the plaintiff alleged only “a bare procedural violation without identifying any concrete harm.”

In a brief Memorandum decision, the Ninth Circuit held that “[s]ection 1681b(f)(1) [of the FCRA] ‘protects the consumer’s substantive privacy interest’ by prohibiting third parties from ‘obtaining a credit report for a purpose not otherwise authorized.’”  The Ninth Circuit stated further that because “‘every violation of § 1681b(f)(1) offends the interest that the statute protects,’ a plaintiff ‘has standing to vindicate her right to privacy under the FCRA when a third-party obtains her credit report without a purpose authorized by the statute, regardless of whether the credit report is published or otherwise used by that third-party.’”  The Ninth Circuit held that the plaintiff’s allegation that defendant obtained her credit report without the required authorization was sufficient to establish Article III standing and reversed and remanded the district court’s dismissal of the plaintiff’s FCRA claim.


Seila Law has filed a motion with the U.S. Supreme Court requesting an enlargement of the time allocated for oral argument (scheduled for March 3) and a division of the time to accommodate “the unusual circumstances for oral argument” that the case presents.  Seila Law states that it has consulted with the DOJ and Paul Clement, the court-appointed amicus curiae, and each consents to the motion and proposed structure for oral argument.

Seila Law observes that the case presents two questions: whether the CFPB’s structure is constitutional and whether, if there is a constitutional violation, the Dodd-Frank Act’s “for-cause” removal provision can be severed.  While both Seila Law and the DOJ agree that the CFPB’s structure is unconstitutional, they disagree as to the appropriate remedy.  The DOJ argues that severance is appropriate and the Supreme Court should vacate the judgment below and remand for further proceedings.  Seila Law argues that the appropriate remedy is for the Supreme Court to reverse the judgment below and either decline to reach the question of severability or hold that the “for-cause” removal provision is not severable.  Mr. Clement was appointed to address only the question of the Bureau’s constitutionality and not the remedy question.

Seila Law asserts that because it and the DOJ are adverse to each other on the remedy question, it would not be appropriate to allocate half of the oral argument time to Seila Law and the DOJ and the other half to Mr. Clement.  It seeks the allocation of a “modest amount of additional time” for itself and the DOJ to argue their respective positions on the remedy question.  Specifically, Seila Law asks the Supreme Court to increase the total time for oral argument from 60 to 70 minutes, with Seila Law and the DOJ to each have 20 minutes and Mr. Clement to have 30 minutes.



On January 7, 2020, Chief United States Bankruptcy Judge Cecilia G. Morris of the United States Bankruptcy Court for the Southern District of New York issued a notable opinion in the case of Rosenberg v. N.Y. State Higher Education Services Corp., granting summary judgment in favor of a U.S. Navy veteran who was seeking to discharge $221,385.49 in federal student loan debt.

The debtor first borrowed money to fund his undergraduate studies at the University of Arizona between 1993 and 1996, where he obtained a Bachelor of Arts degree in History. After serving five years in the Navy, he attended Cardozo Law School at Yeshiva University, borrowing additional sums for the cost of that tuition between 2001 and 2004. After graduating from law school, he consolidated his student loan debt on April 22, 2005 in the principal amount of $116,464.75.

The loan was then in deferment or forbearance for 10 years. In April 2015, the loan went into an income-based repayment plan for one year, over which time the debtor made six payments. The loan went into forbearance again for six months in 2016, and the debtor made three payments of varying amounts, although none were due. The loan went into a standard repayment plan in October 2016, and the debtor made one more payment in 2017. In January 2018, the loan entered default and was accelerated. In total, the debtor made 10 payments and missed 16 over the 26 months that he was responsible for making payments. As of November 19, 2019, when the debtor filed for bankruptcy, with accrued interest and penalties, the total balance of the student loan had grown to $221,385.49.

Section 523(a)(8) of the United States Bankruptcy Code provides that student loan debt will not be discharged in bankruptcy, “unless excepting such debt from discharge . . would impose an undue hardship on the debtor.” When this standard was created in 1976, student loans were dischargeable five years after the loan went into repayment, if this “undue hardship” was shown. Courts interpreted “undue hardship,” to create a high burden for debtors, with many courts interpreting this language to require a “certainty of hopelessness.” Today, student loan debt is not dischargeable at any time, unless the debtor can demonstrate this “undue hardship,” and some courts have criticized bankruptcy petitions seeking to discharge student loan debt as having been filed in “bad faith.” As a result, most laypersons and bankruptcy professionals alike have concluded that it is extremely difficult, if not virtually impossible, to discharge student loan debt. Judge Morris’ opinion in Rosenberg calls that conclusion into question.

Judge Morris began her legal analysis with the three-part test set forth by the Second Circuit in its 1987 decision in Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner):

  1. That the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;
  2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
  3. That the debtor has made good faith efforts to repay the loans.

Judge Morris then examined the line of cases applying Brunner. Referring specifically to the “certainty of hopelessness” phrase that is often repeated in the case law, she concluded that these cases have “pinned on Brunner punitive standards that are not contained therein,” and “subsumed the actual language of the Brunner test.” Judge Morris went on to state that the court would “not participate in perpetuating these myths,” but would instead “apply the Brunner test as it was originally intended.”

Analyzing the test’s first prong, Judge Morris compared the debtor’s scheduled income and expenses, which demonstrated a negative monthly income of $1,548.74, against the amount due on the loan of $221,385.49. Based on this undisputed evidence, she concluded that the debtor had satisfied the first prong because he had no money available to repay the loan and maintain a minimal standard of living. Although there was evidence that the debtor could have become eligible for a repayment plan if he first rehabilitated the loan, Judge Morris declined to analyze whether the debtor could maintain a minimal standard of living while rehabilitating the loan. Because the debtor was not currently in a repayment plan or eligible for one, she concluded that question was “appropriately reserved for a case in which it is not a hypothetical.”

Judge Morris then found that the second prong of the test was satisfied because the loan was due and payable in full, and the repayment period was over. She observed that the court was not required to determine whether the debtor’s state of affairs would persist forever or whether the circumstances were created by the debtor’s choice, but only needed to consider whether the present state of affairs was likely to persist for a significant portion of the repayment period. Finding that the debtor’s “circumstances will certainly exist for the remainder of the repayment period as the repayment period has ended,” Judge Morris concluded that the second prong was satisfied.

Analyzing the third prong, Judge Morris only considered the debtor’s pre-petition behavior in determining whether he had made good faith efforts to repay the loan. She stated that it was inappropriate to consider the debtor’s reasons for filing bankruptcy, how much debt he had, or whether he had rejected repayment options. She noted that the loan history demonstrated an approximate 40% rate of payment over a 13-year period, and that the debtor had called the loan servicer on at least five separate occasions to request forbearance . Based on those facts, Judge Morris found that the debtor had demonstrated a good faith effort to repay the loan.

This opinion may mark the beginning of a significant shift in the interpretation of Section 523(a)(8) and the dischargeability of student loan debt. We will monitor this case for any appeal and watch how other courts treat this opinion.

On January 31, the University of Utah S.J. Quinney College of Law will hold a program, “Consumer Protection in the Trump Administration,” at which CFPB Director Kathy Kraninger will deliver remarks.  The program, which is part of the University’s 2020 Law and Biomedicine Colloquium, is free and open to the public.

Director Kraninger will be responding to questions from Professor Chris Peterson of S.J. Quinney College of Law and from members of the audience.  Professor Peterson served as Special Counsel for Enforcement Policy and Strategy in the CFPB’s Office of Enforcement from 2012 to 2014 and since 2018, has served as Financial Services Director and Senior Fellow of the Consumer Federation of America.  He has authored several Consumer Federation of America reports critical of the Bureau’s policies under the Trump Administration.  Those reports include Dormant: The Consumer Financial Protection Bureau’s Law Enforcement Program in Decline (March 12, 2019) and Missing in Action? Consumer Financial Protection Bureau Supervision and the Military Lending Act (November 1, 2018).