The CFPB has filed an amicus brief in the U.S. Supreme Court in support of the respondent/law firm defendant in Obduskey v. McCarthy & Holthus LLP, et al., a Tenth Circuit decision that held that a law firm hired to pursue a non-judicial foreclosure under Colorado law was not a debt collector as defined under the Fair Debt Collection Practices Act.  The Supreme Court granted certiorari in June 2018 to review the Tenth Circuit’s decision and resolve a circuit split on whether the FDCPA applies to non-judicial foreclosure proceedings.  Because the Supreme Court’s decision in Obduskey will determine whether the FDCPA’s protections apply in countless non-judicial foreclosure actions, it could have a significant financial impact on the mortgage industry.

The amicus brief represents the second CFPB amicus brief filed under Acting Director Mulvaney’s leadership (the first was filed in the Seventh Circuit) and the first CFPB amicus brief filed in the Supreme Court under his leadership.  Most significantly, the amicus brief appears to be the first amicus brief filed by the CFPB in which it has supported the industry position.

In its amicus brief, the CFPB points to FDCPA Section 1692a(6) which defines the term “debt collector” to include, for purposes of Section 1692f(6), someone whose business is principally the “enforcement of security interests.”  Section 1692f(6) provides that it is an unfair or unconscionable collection practice to take or threaten to take nonjudicial action to effect dispossession of property under specified circumstances.  The CFPB argues that it follows from this ‘limited-purpose definition of debt collector” that, except for purposes of Section 1692f(6), enforcing a security interest, is not, by itself debt collection and to read the provision differently would render the “limited-purpose definition…superfluous.”

Based on these provisions, the CFPB contends that because enforcement of a security interest by itself is generally not debt collection under the FDCPA, a person cannot violate the FDCPA by taking actions that are legally required to enforce a security interest.  According to the CFPB, “[t]hat is dispositive here because the initiation of a Colorado nonjudicial-foreclosure proceeding undisputedly was a required step in enforcing a security interest.”  (The CFPB observes in a footnote that, although not implicated in Obduskey, actions clearly incidental to the enforcement of a security interest, even if not strictly required by state law, also would not constitute debt collection.)  The CFPB asserts that deeming the initiation of a non-judicial foreclosure proceeding to be debt collection “could bring the FDCPA into conflict with state law and effectively preclude compliance with state foreclosure procedures.  No sound basis exists to assume Congress intended that result.”

 

 

It has been reported that, without announcement or warning, the regulations applicable to third-party debt collectors in Massachusetts may have changed.  While the state’s Division of Banks (DOB) and the state’s Attorney General (AG) have traditionally regulated, respectively, third-party debt collectors and first-party creditors, the AG is reported to have changed its website recently to include third-party debt collectors as entities that it regulates.

Such a change could have significant implications because the AG’s rules differ from the DOB’s rules.  For example, the verification requirements under the AG’s rules contain more procedures than the DOB’s rules.  We expect industry trade groups to seek clarification from the DOB and AG.

 

 

 

 

Debt collection continues to be one of the most active areas in consumer finance law.  In this week’s podcast, Ballard Spahr attorneys will discuss the challenges facing the debt collection industry in private litigation and how to address them.  We’ll talk about how new technology is changing the industry, assess the effect of the CFPB’s new leadership on debt collection enforcement, and offer thoughts on whether the Bureau’s expected rulemaking will provide relief from current legal uncertainties.

To listen and subscribe to the podcast, click here.

 

New York has enacted legislation that requires creditors to provide new disclosures when using devices to remotely disable vehicles, commonly referred to as “kill switches.”  The new law took effect immediately upon its signing by Governor Cuomo on October 2, 2018.

First, the law amended New York’s Uniform Commercial Code to add a definition for a “payment assurance device.”  The term is defined as “any device installed in a vehicle that can be used to remotely disable the vehicle.”

Second, the law amended the provisions of New York’s General Business Law dealing with debt collection procedures.  The law amends the list of prohibited practices to add that “no principal creditor” or its agent shall remotely disable a vehicle using a “payment assurance device” to repossess a vehicle “without first having given written notice of the possible remote disabling of a vehicle in the method and timetable agreed upon by the consumer and the creditor in the initial contract for services.”  A “principal creditor” is defined as “any person, firm, corporation or organization to whom a consumer claim is owed, due or asserted to be due or owed, or any assignee for value of said person, firm, corporation or organization.”

The written notice required to be sent before using a “payment assurance device” must:

  • Be mailed by registered or certified mail “to the address at which the debtor will be residing on the expected date of the remote disabling of the vehicle”
  • Be postmarked no later than 10 days “prior to the date on which the principal creditor or his agent obtains the right to remotely disable the vehicle”

Violations of the debt collection prohibitions in New York’s General Business Law are deemed a misdemeanor and the NY Attorney General or the district attorney  of  any county can bring an action to enjoin violations.

 

On September 21, 2018, the Attorney General for the State of Washington filed a lawsuit (see complaint) against several companies engaged in purchasing charged-off consumer debts, for operating as “collection agencies” without a license, in violation of the Washington Collection Agency Act (WCAA).  The lawsuit names EGP Investments, LLC, JPRD Investments, LLC, and The Collection Group LLC (the Debt Buyers) as defendants, along with Fair Resolutions, Inc. (FRI) – a licensed collection agency hired to collect debts on their behalf – and Brian Fair (Fair) of Wenatchee, Washington, who formed and owns/controls each company.  While all of the named entities are currently licensed “collection agencies” under Washington law, the lawsuit relates to conduct between May 2004 and September 2009, when the Debt Buyers allegedly filed thousands of collection complaints against Washington consumers without a license.  The lawsuit charges FRI and Fair with aiding and abetting the Debt Buyers’ alleged violation of the WCAA.

Notably, the Debt Buyers (like many of their peers operating in Washington State) obtained licenses prior to October 1, 2013, when the WCAA was amended to clarify that it applied to debt buyers, “whether [they] collect[]  the claims [themselves] or hire[] a third party for collection or an attorney for litigation in order to collect such claims.”  Prior to the amendment, and as relevant here, the WCAA defined a “collection agency” to include entities “directly or indirectly engaged in soliciting claims for collection, or collecting or attempting to collect claims owed or due or asserted to be owed or due another.”  (emphasis added).  Thus, prior to the amendment, many “passive debt buyers” operated under the presumption that the WCAA did not require them to be licensed – an interpretation adopted by the Washington Collection Agency Board, which regulates collection agencies within the state.

However, Washington’s Supreme Court rejected this interpretation in 2014, after the Eastern District of Washington certified the issue during a lawsuit brought by a consumer against a large national debt buyer (see opinion).  Like the Debt Buyers, the defendant in that case became licensed immediately before the 2013 amendment took effect, prior to which it allegedly violated the WCAA by operating without a license – notwithstanding the fact that it hired licensed collection agencies and/or attorneys to actively pursue collection.  While the Washington Supreme Court acknowledged that the pre-amendment definition was “ambiguous,” it found “the most reasonable interpretation [to be] that debt buyers fall within it when they solicit claims for collection[,]” regardless of whether they “outsource[d] the collection [or the filing of collection lawsuits].”  The court noted that the amendment supported this interpretation, as it served to clarify (rather than change) the statute.  Following the Supreme Court’s holding, the defendant raised a good faith defense, and argued that it should not be held liable for violating the WCAA where the statute was ambiguous, and it acted in good faith reliance on the state regulator’s interpretation of the statute. The District Court rejected this argument, however, finding that the legislature’s decision to define the violation as a “per se” unfair practice meant the defendant was liable, even if it acted in good faith.

The Washington AG’s lawsuit highlights the risk created by ambiguous laws and regulations, along with the need for a company to stay current on and consult with legal counsel about potentially applicable laws and regulations – at the federal, state, and local level – in any market in which the company does business.  This is particularly true for laws and regulations pertaining to consumer protection, which (like the WCAA) often allow for enforcement through either private litigation or government enforcement actions.

Beginning in 2019, all California “debt collectors”—including creditors collecting their own debts regularly and in the ordinary course of business—will be required to provide notice to debtors when collecting on debts that are past the statute of limitations and will be prohibited from suing on such debts. The new law is based on provisions in the 2013 California Fair Debt Buying Practices Act. However, unlike the 2013 Act, which limited the notice requirement to “debt buyers,” the new law extends the notice requirement to any collector, wherever located, that is engaged in collecting a debt from a California consumer.

The notice requirements have been added to the Rosenthal Fair Debt Collections Practices Act, which applies to “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.” Under the new law, collectors must deliver one form of notice if an account is reported to credit bureaus and another form if it is beyond the Fair Credit Reporting Act’s seven-year limitation period, or date for obsolescence. (There is no separate notice for a collector who has not reported, and will not report, an account to credit bureaus for any other reason.)

The notices, which are identical to those in the 2013 California debt buying law, must be “included in the first written communication provided to the debtor after the debt has become time-barred” or “after the date for obsolescence,” respectively. “First written communication” means “the first communication sent to the debtor in writing or by facsimile, email or other similar means.” We recommend that clients who email the “first written communication” ensure they receive an effective consent to receive electronic communications from debtors.

We surmise that the BCFP may be studying California’s disclosures as the BCFP formulates its notice of proposed rulemaking for third-party debt collection, which it has said it will issue next year. The 2013 advance notice of proposed rulemaking and 2016 outline of proposals issued by the Cordray-era Bureau suggested it was considering limits on the collection of time-barred debts. Therefore, California’s new law may influence any ongoing discussions and drafting by the Bureau’s current staff and leadership on this point.

The new California law also amends the statute of limitations provision in Section 337 of the California Code of Civil Procedure to prohibit any person from bringing suit or initiating an arbitration or other legal proceeding to collect certain debts after the four year limitations period has run. With this amendment, the expiration of the statute of limitations will be an outright prohibition to suit, rather than an affirmative defense that must be raised by the consumer.

The CFPB’s newly-released Summer 2018 edition of Supervisory Highlights represents the CFPB’s first Supervisory Highlights report covering supervisory activities conducted under Acting Director Mick Mulvaney’s leadership.  The Bureau’s most recent prior Supervisory Highlights report was its Summer 2017 edition, which was issued in September 2017.

On October 10, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Key Takeaways from the CFPB’s Summer 2018 Supervisory Highlights.”  The webinar registration form is available here.

Noticeably absent from the new report’s introduction and the Bureau’s press release about the report are statements touting the amount of restitution payments that resulted from supervisory resolutions or the amounts of consumer remediation or civil money penalties resulting from public enforcement actions connected to recent supervisory activities.  (The report does, however, include summaries of the terms of two consent orders entered into by the Bureau, including its settlement with Triton Management Group, Inc., a small-dollar lender, regarding the Bureau’s allegations that Triton had violated the Truth in Lending Act and the CFPA’s UDAAP prohibition by underdisclosing the finance charge on auto title pledges entered into with consumers.)

The report confirms that the Bureau’s supervisory activities have continued without significant change under its new leadership.  It includes the following information:

Automobile loan servicing.  The report indicates that in examinations of auto loan servicing activities, Bureau examiners focus primarily on whether servicers have engaged in unfair, deceptive, or abusive acts or practices prohibited by the CFPA.  It discusses instances observed by examiners in which servicers had sent billing statements to consumers who had experienced a total vehicle loss showing that the insurance proceeds had been applied to the loan so that the loan was paid ahead and the next payment was due months or years in the future.  The CFPB found the due dates in these statements to be inconsistent with the terms of the consumers’ notes which required the insurance proceeds to be applied to the loans as a one-time payment and any remaining balance to be collected according to the consumers’ regular payment schedules.  According to the CFPB, sending such statements was a deceptive practice.  The CFPB indicates that in response to the examination findings, servicers are sending billing statements that accurately reflect the account status after applying insurance proceeds.

The Bureau also found instances where servicers, due to incorrect account coding or the failure of their representatives to timely cancel the repossession, had repossessed vehicles after the repossession should have been cancelled because the consumer had entered into an extension agreement or made a payment.  This was found to be an unfair practice.  The CFPB indicates that in response to the examination findings, servicers are stopping the practice, reviewing the accounts of affected consumers, and removing or remediating all repossession-related fees.

Credit cards.  The report indicates that in examinations of the credit card account management operations of supervised entities, Bureau examiners typically assess advertising and marketing, account origination, account servicing, payments and periodic statements, dispute resolution, and the marketing, sale and servicing of add-on products.  The Bureau found instances where entities failed to properly re-evaluate credit card accounts for APR reductions in accordance with Regulation Z requirements where the APRs on the accounts had previously been increased. The report indicates that the issuers have undertaken, or developed plans to undertake, remedial and corrective actions in response to the examination findings.

Debt collection.  In examinations of larger participants, Bureau examiners found instances where debt collectors, before engaging in further collection activities as to consumers from whom they had received written debt validation disputes, had routinely failed to mail debt verifications to such consumers. The Bureau indicates that in response to the examination findings, the collectors are revising their debt validation procedures and practices to ensure that they obtain appropriate verifications when requested and mail them to consumers before engaging in further collection activities.

Mortgage servicing.  The report indicates that in examinations of servicers, Bureau examiners focus on the loss mitigation process and, in particular, on how servicers handle trial modifications where consumers are paying as agreed. In such examinations, the Bureau found unfair acts or practices relating to the conversion of trial modifications to permanent status and the initiation of foreclosures after consumers accepted loss mitigation offers.  In reviewing the practices of servicers with policies providing for permanent modifications of loans if consumers made four timely trial modification payments, the Bureau found that for nearly 300 consumers who successfully completed the trial modification, the servicers delayed processing the permanent modification for more than 30 days.  During these delays, consumers accrued interest and fees that would not have been accrued if the permanent modification had been processed.  The servicers did not remediate all of the affected consumers ,did not have policies or procedures for remediating consumers in such circumstances, and attributed the modification delays to insufficient staffing.  The Bureau indicates that in response to the examination findings, the servicers are fully remediating affected consumers and developing and implementing policies and procedures to timely convert trial modifications to permanent modifications where the consumers have met the trial modification conditions.

The Bureau also identified instances in which servicers, due to errors in their systems, had engaged in unfair acts or practices by charging consumers amounts not authorized by modification agreements or mortgage notes.  The Bureau indicates that in response to the examination findings, the servicers are remediating affected consumers (presumably by refunding or credit the unauthorized amounts) and correcting loan modification terms in their systems.

With regard to foreclosure practices, Bureau examiners found instances where mortgage servicers had approved borrowers for a loss mitigation option on a non-primary residence and, despite representing to borrowers that they would not initiate foreclosure if the borrower accepted loss mitigation offers in writing or by phone by a specified date, initiated foreclosures even if the borrowers had called or written to accept the loss mitigation offers by that date.  The Bureau identified this as a deceptive act or practice. The Bureau also found instances where borrowers who had submitted complete loss mitigation applications less than 37 days from a scheduled foreclosure sale date were sent a notice by their servicer indicating that their application was complete and stating that the servicer would notify the borrowers of their decision on the applications in writing within 30 days.  However, after sending these notices, the servicers conducted the scheduled foreclosure sales without making a decision on the borrowers’ loss mitigation application.  Interestingly, while the Bureau did not find that this conduct amounted to a “legal violation,” it did find that it could pose a risk of a deceptive practice.

Payday/title lending.  Bureau examiners identified instances of payday lenders engaging in deceptive acts or practices by representing in collection letters that “they will, or may have no choice but to, repossess consumers’ vehicles if the consumers fail to make payments or contact the entities.”  The CFPB observed that such representations were made “despite the fact that these entities did not have business relationships with any party to repossess vehicles and, as a general matter, did not repossess vehicles.”  The Bureau indicates that in response to the examination findings, these entities are ensuring that their collection letters do not contain deceptive content.  Bureau examiners also observed instances where lenders had used debit card numbers or Automated Clearing House (ACH) credentials that consumers had not validly authorized them to use to debit funds in connection with a defaulted single-payment or installment loan.  According to the Bureau, when lenders’ attempts to initiate electronic fund transfers (EFTs) using debit card numbers or ACH credentials that a borrower had identified on authorization forms executed in connection with the defaulted loan were unsuccessful, the lenders would then seek to collect the entire loan balance via EFTs using debit card numbers or ACH credentials that the borrower had supplied to the lenders for other purposes, such as when obtaining other loans or making one-time payments on other loans or the loan at issue.  The Bureau found this to be an unfair act or practice.  With regard to loans for which the consumer had entered into preauthorized EFTs to recur at substantially regular intervals, the Bureau found this conduct to also violate the Regulation E requirement that preauthorized EFTs from a consumer’s account be authorized by a writing signed or similarly authenticated by the consumer.  The Bureau indicates that in response to the examination findings, the lenders are ceasing the violations, remediating borrowers impacted by the invalid EFTs, and revising loan agreement templates and ACH authorization forms.

Small business lending. The Bureau states that in 2016 and 2017, it “began conducting supervision work to assess ECOA compliance in institutions’ small business lending product lines, focusing in particular on the risks of an ECOA violation in underwriting, pricing, and redlining.”  It also states that it “anticipates an ongoing dialogue with supervised institutions and other stakeholders as the Bureau moves forward with supervision work in small business lending.”  In the course of conducting ECOA small business lending reviews, Bureau examiners found instances where financial institutions had “effectively managed the risks of an ECOA violation in their small business lending programs,” with the examiners observing that “the board of directors and management maintained active oversight over the institutions’ compliance management system (CMS) framework.  Institutions developed and implemented comprehensive risk-focused policies and procedures for small business lending originations and actively addressed the risks of an ECOA violation by conducting periodic reviews of small business lending policies and procedures and by revising those policies and procedures as necessary.”  The Bureau adds that “[e]xaminations also observed that one or more institutions maintained a record of policy and procedure updates to ensure that they were kept current.”  With regard to self-monitoring, Bureau examiners found that institutions had “implemented small business lending monitoring programs and conducted semi-annual ECOA risk assessments that include assessments of small business lending.  In addition, one or more institutions actively monitored pricing-exception practices and volume through a committee.”  When the examinations included file reviews of manual underwriting overrides at one or more institutions, Bureau examiners “found that credit decisions made by the institutions were consistent with the requirements of ECOA, and thus the examinations did not find any violations of ECOA.”  The only negative findings made by Bureau examiners involved instances where institutions had collected and maintained (in useable form) only limited data on small business lending decisions.  The Bureau states that “[l]imited availability of data could impede an institution’s ability to monitor and test for the risks of ECOA violations through statistical analyses.”

Supervision program developments.  The report discusses the March 2018 mortgage servicing final rule and the May 2018 amendments to the TILA-RESPA integrated disclosure rule.  With regard to fair lending developments, it discusses recent HMDA-related developments and small business lending review procedures.  With regard to small business lending, the Bureau highlights that its reviews include a fair lending assessment of an institution’s compliance management system (CMS) related to small business lending and that CMS reviews include assessments of the institution’s board and management oversight, compliance program (policies and procedures, training, monitoring and/or audit, and complaint response), and service provider oversight.  The CFPB indicates that in some ECOA small business lending reviews, examiners may look at an institution’s fair lending risks and controls related to origination or pricing of small business lending products, including a geographic distribution analysis of small business loan applications, originations, loan officers, or marketing and outreach, in order to assess potential redlining risk.  It further indicates that such reviews may include statistical analysis of lending data in order to identify fair lending risks and appropriate areas of focus during the examination.  The Bureau states that “[n]otably, statistical analysis is only one factor taken into account by examination teams that review small business lending for ECOA compliance. Reviews typically include other methodologies to assess compliance, including policy and procedure reviews, interviews with management and staff, and reviews of individual loan files.”

In the CFPB’s RFI on its supervision program, one of the topics on which the CFPB sought comment is the usefulness of Supervisory Highlights to share findings and promote transparency.  The new report indicates that the Bureau “expects the publication of Supervisory Highlights will continue to aid Bureau-supervised entities in their efforts to comply with Federal consumer financial law.”  Presumably, this means that we will now again be seeing new editions of Supervisory Highlights on a regular basis.

 

Weltman, Weinberg & Reis Co., L.P.A., the law firm that recently defeated the CFPB’s FDCPA lawsuit against it, has filed a motion seeking attorney’s fees of approximately $1.2 million from the CFPB.

After a four-day trial, the Ohio federal district court hearing the CFPB’s lawsuit, found that the CFPB had failed to prove its FDCPA and CFPA claims by a preponderance of the evidence.  The CFPB’s complaint alleged that the debt collection letters sent by Weltman, which were printed on the law firm’s letterhead, violated the FDCPA and CFPA because they falsely implied that attorneys were “meaningfully involved” in the collection of the debts.  Having found that the letters could be interpreted to imply meaningful involvement by an attorney, the court concluded that there was “meaningful[] and substantial[] involve[ment by Weltman attorneys] in the debt collection process both before and after the issuance of the demand letters.”

In its motion, Weltman asserts that “the Bureau’s blind pursuit of its groundless case cost Weltman dearly, both in terms of substantial expense Weltman incurred in its defense and the reputational harm that cost the firm valued clients and employees.”

Weltman’s motion seeks attorney’s fees pursuant to the Equal Access to Justice Act (“EAJA”), which permits a court to award “reasonable fees and expenses of attorneys” to the prevailing party in a civil action brought by any agency of the United States “to the same extent that any other party would be liable under the common law or under the terms of any statute which specifically provides for such an award.” 28 U.S.C. § 2412(b).  Weltman asserts that “the EAJA puts the United States on equal footing with private litigants under common law and statute,” and that courts applying this provision have held the government to the same good faith standard expected of all parties to litigation.  According to Weltman, Section 2412(b) of the EAJA “permits a court to sanction the United States and its agencies for attorney’s fees under th[e] common law ‘bad faith’ exception to the American Rule that each party bears its own attorney’s fees.”

Weltman argues that, as the prevailing party, it is entitled to its reasonable attorney’s fees “because the Bureau prosecuted this action in bad faith.”  It asserts that “the Bureau knew, or should have known, that its claims lacked merit long before it even filed the Complaint.”  It claims that based on the more than two-year investigation of Weltman that the Bureau conducted, “the Bureau knew no consumer had been harmed, misled, or confused by Weltman’s practice of truthfully identifying itself as a law firm.”

Ballard Spahr attorneys have successfully pursued attorney’s fees claims against federal government agencies under the EAJA as well as attorney’s fees claims against state government agencies under other federal statutes, such as Section 1988(b) of the Civil Rights Act.  This provision entitles a “prevailing party” in a Civil Rights Act lawsuit to recover its reasonable attorney’s fees and expenses from the losing party.  Several years ago, our client brought a Civil Rights Act lawsuit against a state’s banking regulator in which it successfully argued that the regulator’s attempt to apply its laws to our client’s loans was precluded by the Commerce Clause of the U.S. Constitution.  That state subsequently paid our client $440,000 to resolve its petition seeking attorney’s fees as a “prevailing party” in a Civil Rights Act lawsuit.

The CFPB, in a decision and order signed by Acting Director Mulvaney, has denied the petition filed by Firstsource Advantage, LLC (Firstsource) to modify or set aside a civil investigative demand (CID) (Petition) that was issued under the leadership of former Director Cordray.  The CFPB did, however, grant Firstsource’s request to redact portions of the Petition that contained confidential supervisory information.  Acting Director Mulvaney’s decision demonstrates that despite the protestations of consumer advocates and some politicians, the CFPB under Mr. Mulvaney’s leadership is continuing to pursue investigations launched under former Director Cordray.

According to the Petition, there was “full compliance” by Firstsource  with the first CID issued by the Bureau to Firstsource in April 2017. A second CID was issued in September 2017 and contained a Notification of Purpose which stated that the CID had been issued “to determine whether debt collectors, depository institutions, or other persons have engaged or are engaging in unlawful acts and practices in connection with the collection of debt in violation of [the CFPA, the FDCPA] or any other Federal consumer financial law.”

In its Petition, Firstsource argued that the second CID should be set aside for reasons that included: (1) the FDCPA violations asserted by the Bureau are not actionable under the bona fide error rule, (2) the issuance of the CID was outside the Bureau’s Dodd-Frank authority because it had not identified (and cannot identify) any legally cognizable reason to believe Firstsource violated the FDCPA, (3) the Notification of Purpose was written in a vague and formulaic fashion, and (3) Firstsource had already produced data and documents to the Bureau.

The Bureau refused to set aside the CID, stating that “an entity’s fact-based arguments about whether it has complied with substantive provisions of the CFPA or any other enumerated consumer law, such as the FDCPA, are not valid defenses to the enforcement of a CID.”  With regard to Firstsource’s argument that the CID’s issuance was outside the Bureau’s Dodd-Frank authority, the Bureau stated that, even if Firstsource’s assertion were true, the applicable standard only requires a CID “to state the nature of the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation.”  It also found that the CID’s Notification of Purpose was adequate despite its use of broad terms because it identified the conduct at issue (debt collection) and made clear that this was the conduct being investigated.

In rejecting Firstsource’s argument that it had already produced data and documents to the Bureau, the Bureau stated that Firstsource had identified “no authority that precludes a law enforcement agency from making follow-up requests for information.”

Firstsource also argued that as an alternative to setting aside the CID in its entirety, the CID should be modified for reasons that included: (1) the CID was disproportionate because it was unlikely to serve an investigatory purpose and imposed an unnecessary burden on Firstsource because the Bureau could have requested a sampling approach to the recordings of calls it requested, and (2) the requested recordings were time-barred under the FDCPA.  The CFPB rejected both of Firstsource’s arguments for why the CID was disproportionate, stating that Firstsource’s belief that it had not violated the law did not make the Bureau’s investigation improper and that Firstsource’s request for a sampling approach was untimely because it had not been made during the meet-and-confer process.

With respect to Firstsource’s argument that the requested recordings were time-barred, the Bureau stated that even assuming potential FDCPA claims were time-barred, the Notification of Purpose made clear that the Bureau was also investigating whether there had been CFPA violations which are subject to a 3-year statute of limitations that runs from discovery of the violation. Thus, the CFPA statute of limitations would not have begun to run if a CFPA violation had not yet been discovered and the Bureau was seeking the recordings to determine whether there had been a violation.

On September 11, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “The CFPB Under Mulvaney: What Has Really Changed?”  The webinar registration form is available here.

 

On August 1, 2018, Sen. Bill Nelson (D-Florida) introduced S. 3334 captioned “The Military Lending Improvement Act of 2018” in the United States Senate to “expand and improve” credit protections afforded to service members by the Military Lending Act (MLA) and the Fair Debt Collection Practices Act (FDCPA).  If this bill becomes law, it would lower the maximum rate of interest on covered transactions from 36 percent to 24 percent.  It would also expand transactions covered by the MLA to include auto and other loans secured by personal property, extend MLA protections to recently-discharged veterans, and amend the FDCPA to prohibit debt collectors from “harassing” service members by calling their commanding officers.

In a press release, Sen. Nelson, who is a senior member of the Senate Armed Services Committee, stated that “our military men and women have dedicated their lives to serving our county and we must help ensure they do not become the targets of unscrupulous lenders.”  Specifically, the bill would:

  • Reduce the interest rate cap under the MLA from 36 percent to 24 percent.  (The 36% cap is on the Military Annual Percentage Rate (MAPR), which is an “all-in” APR that includes interest and other fees such as application fees and annual fees that are not finance charges under Regulation Z.)
  • Extend coverage of the MLA to veterans for up to one year following discharge from active duty.
  • Expand coverage of the MLA to credit intended to finance the purchase of motor vehicles and other personal property.
  • Amend the FDCPA to prohibit debt collectors from “communicat[ing], in connection with the collection of any debt, with the commanding officer or officer in charge of any covered member, including for the purpose of acquiring location information about the covered member.”
  • Prohibit debt collectors from threatening that failure to cooperate with a debt collector will result in prosecution under the Uniform Code of Military Justice.
  • Prohibit creditors from requiring installation of GPS trackers or kill switches in motor vehicles as a condition of extending credit to service members.
  • Require the Department of Defense to assess whether creditors downloading bulk data from the MLA database are using adequate safeguards to prevent data breaches and other potential misuse of downloaded data.

The Military Lending and Improvement Act of 2018 was originally introduced as amendments to the National Defense Reauthorization Act of 2019 (which has already been presented to the President for signature), though no action was taken on the proposed amendments.  Accordingly, Sen. Nelson reintroduced the amendments as a standalone bill, S. 3334, which has been referred to the Committee on Banking, Housing and Urban Affairs.  The bill will surely be opposed by the consumer financial services industry, which has seen MLA coverage explode from furthering the statute’s original purpose — protecting service members from aggressive pay day-type loans – to placing restrictions on forms of credit not typically considered “predatory,” such as credit cards.  We will provide updates on the bill as they become available.