Our webinar yesterday, “Consumer Financial Regulatory and Litigation Fallout from the COVID-19 Crisis,” in which we were joined by special guest speakers Richard Cordray, former CFPB Director, and John Roddy, Partner at Bailey & Glasser and prominent plaintiffs’ class action lawyer, highlighted the regulatory and litigation risks the crisis is expected to create for members of the consumer financial services industry.  Chris Willis, Practice Leader of Consumer Financial Services Litigation at Ballard Spahr, also participated in the webinar, and Alan Kaplinsky, Practice Leader of the firm’s Consumer Financial Services Group, moderated the webinar.

Mr. Roddy discussed the emergency debt collection regulation issued by the Massachusetts AG and the possibility of state UDAP claims based on collection activities during the crisis.  Mr. Cordray discussed the CFPB’s authority in the areas of mortgage and student loan servicing, debt collection and credit reporting, and referenced a white paper he published yesterday directed to CFPB Director Kraninger and various Senate and House members setting forth immediate actions the CFPB should take to prevent consumer harm, including the following:

  • Using its supervisory authority to closely monitor banks, financial companies, and mortgage loan servicers to make sure they follow through in making the mortgage relief required by the CARES Act available to consumers and for mortgage loans not covered by the CARES Act, working with lenders and servicers to try to develop similar arrangements for payment forbearance and loan modifications.
  • Pressing companies to offer help to consumers to minimize loan delinquencies and defaults, such as by waiving overdraft fees, NSF fees, or late fees and by providing forbearance on loan payments.
  • Issuing guidance reminding debt collectors that the FDCPA prohibits any conduct “the natural consequence of which is to harass, oppress or abuse any person in connection with the collection of a debt” or any conduct that is “unfair or unconscionable” and outlining parameters that debt collectors should observe to avoid engaging in conduct that is abusive or unconscionable, such as refraining from initiating new debt collection lawsuits, garnishing wages, or attaching bank accounts.

With regard to the question of whether the CFPB should adopt measures like the Massachusetts AG’s emergency debt collection regulation, Chris Willis questioned whether the CFPB would have the authority to adopt a similar measure that barred certain collection activity.  Also discussed was the ability of states to enact laws that require changes to the terms of credit, such as waiving late fees, changing due dates, or stopping interest accrual, including the impact of federal preemption on national banks and federal savings associations.

All of the speakers stressed the need for companies to identify potential sources of risk in their operations and attempt to address those risks in advance.  Examples given of operational areas that could be impacted by employees working remotely and create compliance and reputational risks included call centers and customer service, collections, dispute investigation, loss mitigation, fraud investigation/ID monitoring, and compliance monitoring.  The speakers discussed the types of industry practices that might be viewed as unfair and thus trigger scrutiny from regulators such as continuing to charge for goods or services that cannot be provided during the crisis or initiating automatic charges via credit or debit cards or ACH during a government-ordered grace period.  Another potential area of risk highlighted by Chris Willis was fair lending issues that could arise from the handling of modification and forbearance requests.