Earlier this week, the CFPB issued a Request for Information (RFI) regarding an assessment of the significant amendments to the Home Mortgage Disclosure Act rules, known as Regulation C, adopted in October 2015 and subsequently revised in several additional rulemakings (the “HMDA Rule”).  Responses to the RFI will be due 60 days after it is published in the Federal Register.  It is clear from the title of the CFPB’s press release announcing the assessment, “CFPB Seeks Input on Detecting Discrimination in Mortgage Lending,” that the CFPB is treating this assessment as an initiative addressing fair lending.

Under the Dodd-Frank Act, the CFPB must conduct an assessment of each significant rule or order it has adopted under federal consumer financial law and publish a report of each assessment no later than five years after the effective date of the rule or order.  The CFPB advises that while it determined that the HMDA Rule is not a significant rule for purposes of the Dodd-Frank Act, the CFPB “considers the HMDA Rule to be of sufficient importance to support the [CFPB] conducting a voluntary assessment.”  The CFPB plans to issue a report of its assessment not later than January 1, 2023 (most of the October 2015 amendments became effective on January 1, 2018).

The CFPB advises that it intends to focus its evaluation on the following primary topic areas: (1) institutional coverage and transactional coverage, (2) data points, (3) benefits of the new data and disclosure requirement, and (4) operational and compliance costs.  The CFPB’s public guidance that sets forth the balancing test used to determine whether and how HMDA data should be modified prior to its disclosure to the public to protect applicant and borrower privacy is outside the scope of the assessment.  With regard to operational and compliance costs, the CFPB notes that  it “will work from the methods and findings it published with the cost-benefit analysis in the 2015 HMDA Final Rule [and] will also use comments responding to this request for information to determine whether those methods and findings remain valid.”

The CFPB requests information on a number of specific issues, including:

  • Data and other factual information that the CFPB may find useful in executing its assessment plan and answering related research questions, particularly research questions that may be difficult to address with the data currently available to the CFPB.
  • The specific data points reported under the HMDA Rule that help meet the objectives of the Rule.
  • Data and other factual information about the benefits and costs of the HMDA Rule for communities, public officials, reporters, mortgage industry participants, or other stakeholders, the effects of the rule on transparency in the mortgage market, and the utility, quality, and timeliness of HMDA data in meeting the Rule’s stated goals and objectives.
  • Data and other factual information about the accuracy of estimates of annual ongoing compliance and operational costs for HMDA reporters, or the analytical approach used to estimate these costs, as delineated in the Small Business Review Panel Report issued by the panel that the Bureau convened and chaired in 2014 pursuant to the Small Business Regulatory Enforcement Fairness Act.  In particular, the CFPB seeks comments:
    • Related to the nature and magnitude of any operational challenges in complying with the HMDA Rule, and whether they are significantly different from those delineated in the published Report of the Small Business Review Panel.
    • Delineating and describing the ongoing costs incurred in collecting and reporting information for the HMDA Rule, and whether they are significantly different from those delineated in the published Report of the Small Business Review Panel.
  • Recommendations for modifying, expanding, or eliminating any aspects of the HMDA Rule, including but not limited to the institutional coverage and loan-volume thresholds, transactional coverage, and data points.

In a surprising turn of events this morning, the U.S. Court of Appeals for the Eleventh Circuit issued an order sua sponte to rehear Hunstein v. Preferred Collection and Management Services, Inc. en banc.  The sua sponte order was issued after an Eleventh Circuit judge requested a poll on whether the case should be reheard en banc and a majority of the active judges voted in favor of the rehearing.  The order also expressly vacated the existing substitute opinion issued by the panel earlier this month, meaning that the opinion is no longer binding precedent in the Eleventh Circuit and should not be cited as having any precedential value within the Eleventh Circuit or beyond.

Today’s order to rehear the case en banc follows the panel’s 2-1 decision last month, in which the panel issued a substitute opinion in response to the first effort to obtain rehearing by the defendant.  In the substitute opinion, the majority affirmed its original April 2021 holding that the plaintiff had Article III standing and sufficiently pled a claim but also included analysis of the U.S. Supreme Court’s intervening decision in TransUnion v. Ramirez in the panel’s standing analysis.  In dissent, Judge Tjoflat argued that the majority’s decision conferred standing too broadly in light of Ramirez and that Congress did not intend for a violation of FDCPA §1692c(b) to create standing in the absence of actual damages.

The next step will be for the Eleventh Circuit to state the specific issues on which it requests briefing and establish the timing for rehearing en banc.  We are hopeful that the full court will agree to consider not just the standing issue on which the panel divided, but also the broader issue of whether any FDCPA claim can exist under the circumstances in light of the plain language of the FDCPA and other considerations, all of which were briefed extensively in prior amicus petitions supporting the defendant’s original rehearing effort earlier this year.

 

 

On November 8, 2021, New York Governor Hochul signed into law the “Consumer Credit Fairness Act” (S.153).  The Act contains a series of amendments to the New York Civil Practice Law and Rules that significantly impact debt collection lawsuits filed in New York state courts by creditors or debt collectors.

The key amendments include:

  • A 3-year statute of limitations for most collection lawsuits arising out of a consumer credit transaction
  • A prohibition on revival or extension of the limitations period based on a subsequent payment, written or oral affirmation, or other activity on the debt
  • When a collection action against a consumer arising out of a consumer credit transaction is filed, a specified notice must be submitted to the court by the plaintiff for the court to mail to the consumer
  • Documentation/information requirements for a collection action arising out of a consumer credit transaction, which include:
    • The contract or other written instrument on which the lawsuit is based must be attached to the complaint (which for revolving accounts can be satisfied by the charge-off statement)
    • If the plaintiff is not the original creditor, the complaint must include the date of assignment or sale of the debt to the plaintiff, the name of each previous owner of the account and the date of assignment to that owner, and the amount due at the time of sale or assignment by the original creditor
  • When summary judgment is sought in a collection action against a consumer arising out of a consumer credit transaction where the consumer is not represented by an attorney, a specified notice must be submitted to the court by the plaintiff for the court to mail to the consumer
  • When a default judgment is sought in a collection action arising out of a consumer credit transaction by a plaintiff who is not the original creditor, the application for default judgment must include (1) an affidavit by the original creditor “of the facts constituting the debt, the default in payment, the sale or assignment of the debt, and the amount due at the time of sale or assignment,” (2) for each subsequent assignment, an affidavit of sale of the debt by the debt seller, and (3) an affidavit of a witness of the plaintiff which includes a chain of title of the debt

With the exception of the prohibition on revival or extension of the statute of limitations which becomes effective on April 6, 2022, the other amendments described above become effective on May 6, 2022.

Expansion of CRA coverage.  On November 1, New York Governor Hochul signed into law amendments (S.5246-A/A.6247-A) to the New York Community Reinvestment Act (NYCRA) that expand the NYCRA’s coverage to non-depository mortgage lenders.  The amendments are effective November 1, 2022.  New York now joins a small group of states, including Illinois and Massachusetts, that apply CRA-type laws to non-depository mortgage lenders.

The amendments require the DFS to consider the performance record of a New York-licensed mortgage banker “in helping to meet the credit needs of its entire community, including low and moderate income neighborhoods…consistent with safe and sound operation” when taking action on an application for a change in control.  The amendments allow DFS to issue regulations expanding the types of applications and notices for which it will consider such performance when taking action.

The amendments direct the DFS, in assessing a mortgage banker’s performance, to review all reports and documents filed by the mortgage banker.  They also include a list of factors that DFS must consider when making such assessments.  Most significantly, the amendments provide that an assessment of a mortgage banker’s performance can be the basis for DFS to deny an application.  They also authorize DFS to issue regulations to implement the amendments, including establishing a minimum annual number of loans that a mortgage banker must originate to be subject to a NYCRA assessment.

Proposal regarding data collection on loan applications from minority- and women-owned businesses.  In 2019 and effective in 2020,  the NYCRA was amended to require DFS to consider several aspects of a New York-chartered bank’s activities with respect to minority- and women-owned businesses in NYCRA performance evaluations.  DFS must consider “the record of performance of the banking institution in helping to meet the credit needs of its entire community, including … minority- and women-owned businesses, consistent  with safe and sound operation of the banking institution.”  The factors DFS must consider in assessing a bank’s performance include its “participation, including investments, … in technical assistance programs for small businesses and minority- and women-owned businesses” and its “origination of … minority- and women-owned business loans within its community or the purchase of such loans originated in its community.”

Earlier this month, DFS issued proposed revisions to its regulations implementing the NYCRA that would add a new section titled “Minority- and women-owned business loan data collection.”  The new section sets forth the data that banks must compile and maintain regarding loan applications from minority- and women-owned businesses and make available to DFS upon request.  It also includes (1) provisions restricting the access of loan underwriters or other bank officer or employee involved in making credit decisions to information provided by an applicant indicating whether or not it is a minority- or women-owned business, and (2) a new disclosure that banks must provide to business loan applicants.  Comments on the proposal are due by January 3, 2022.

The CFPB is currently engaged in a rulemaking to implement Dodd-Frank Act Section 1071 which require financial institutions to collect and report certain data in connection with credit applications made by small businesses, including women- or minority-owned small businesses.  Unlike the DFS’s proposal which would require banks to compile and maintain data about loan applications from all minority- and women-owned businesses regardless of their size, the CFPB’s proposed Section 1071 rule requires banks to collect and report data only regarding applications from women-owned and minority-owned businesses that are “small businesses.”  The proposed DFS revisions, however, allow the DFS, at its discretion, to determine that a bank’s compliance with the CFPB’s final Section 1071 rule constitutes compliance with DFS’s data collection requirements for applications from minority- and women-owned businesses.

 

With the return to repayment of federal student loans on February 1, 2022 quickly approaching, the Department of Education’s Office of Federal Student Aid (FSA) recently notified the private collection agencies (PCAs) under contract with FSA to collect Direct Loans that it would begin the process of recalling approximately 5.1 million borrower accounts and winding down the PCAs’ contracts.  FSA expects to transition default counseling, debt collection, and related work to its Business Process Operations vendors, some of which (or their subcontractors) are among the PCAs it has notified of its recall plans.

In the short-term, Maximus, which operates the FSA’s Debt Management and Collection System, will continue to provide borrower assistance through the Default Resolution Group contact center.  FSA has indicated that it plans to send an email to borrowers regarding the change and that it will update StudentAid.gov and other information once the PCA contracts officially end.

In the latest demonstration that there’s a “new CFPB” as well as other new regulatory sheriffs in town, the CFPB, the federal banking agencies (OCC, FDIC, Federal Reserve Board, and NCUA), and state financial regulators issued a joint statement yesterday to announce that they will no longer provide “supervisory and enforcement flexibility” to mortgage servicers in meeting compliance requirements.  Concurrently with the release of the joint statement, the CFPB also issued a report titled “Mortgage Servicing Efforts in Response to the COVID-19 Pandemic.”

In April 2020,  the agencies issued a joint statement to announce that, in response to the COVID-19 pandemic, they would not take supervisory or enforcement action against mortgage servicers for failing to meet certain timing requirements in the Regulation X mortgage servicing rules as long as the servicers made a good faith effort to provide the required notices or disclosures and took related actions within a reasonable time period.

In the joint statement issued yesterday, the agencies announce that “the temporary flexibility described in the April 2020 Joint Statement no longer applies” and that they “will apply their respective supervisory and enforcement authorities, where appropriate, to address any noncompliance or violations of the Regulation X mortgage servicing rules that occur after [November 10, 2021].”  The agencies explain that they believe the temporary flexibility is no longer needed “because servicers have had sufficient time to adjust their operations by, among other things, taking steps to work with consumers affected by the COVID-19 pandemic and developing more robust business continuity and remote work capabilities.”

The agencies conclude the joint statement by advising servicers that they “will consider, when appropriate, the specific impact of servicers’ challenges that arise due to the COVID-19 pandemic and take those issues in account when considering any supervisory and enforcement actions.”  They further state that “[a]s part of their considerations, the agencies will factor in the time it takes to make operational adjustments in connection with the joint statement.”  This suggests that the agencies might provide some leniency in the event of non-compliance.  However, it is clear from the overall message delivered by the agencies that servicers who rely on this suggestion with the expectation that they will receive leniency for non-compliance do so at their peril.

CFPB mortgage servicing report.  The report reviews actions taken by the CFPB to “respond[] to the evolving needs of homeowners and CFPB supervised entities,” including prioritized assessments of mortgage servicers and a targeted review of high-risk complaints related to COVID-19. forbearance.  The CFPB states that it will continue targeted data collection and evaluation efforts to assess how individual servicers performed for consumers exiting forbearance.”  As part of those evaluation efforts, the CFPB plans to use “complaints, supervisory information, and other available data.”

 

 

Targeted advertising has become an important marketing tool for many providers of consumer financial services.  After discussing the primary screening methods offered to providers for identifying consumers to receive their advertising, we look at claims made in private lawsuits involving the intersection of targeted marketing and anti-discrimination laws and how the courts have responded to such claims, the status of regulatory activity, whether advertisers using targeted marketing are vulnerable to redlining claims, and issues for providers to consider before engaging in targeted marketing.

Alan Kaplinsky, Ballard Spahr Senior Counsel, hosts the conversation, joined by Chris Willis, Co-Chair of the firm’s Consumer Financial Services Group.

Click here to listen to the podcast.

On October 29, the New York Department of Financial Services issued proposed amendments to 23 NYCRR 1, its regulation titled “Debt Collection by Third-Party Debt Collectors and Debt Buyers.”  The proposed amendments would make significant changes to the sections of the current regulation dealing with initial disclosure requirements, statute of limitations disclosures, substantiation requirements, and telephone and electronic communications.  They would also align the DFS regulation with several of the CFPB’s requirements in Regulation F.  Regulation F is set to become effective on November 30, 2021.

Required initial disclosures by debt collectors

23 NYCRR 1 currently requires debt collectors to provide certain written information, within five days of the initial communication (unless the initial communication was in writing and included the notice).  The proposed amendments revise the information about the debt that must be included in the initial disclosures.  They require a debt collector to disclose:

  • Name of the creditor to which the debt was originally owed or alleged to be owed
  • Account number or a truncated version of such number
  • Merchant brand, affinity brand, or facility name associated with the debt
  • Name of the creditor to which the debt is currently owed
  • Date of default
  • Date of last payment
  • For a debt not reduced to judgment, the applicable statute of limitations expressed in years
  • Itemized accounting of the debt, including current amount due

Additionally, these amendments require a debt collector to send, either in the initial notice or within five days of it:

  • Information about the debt
  • A notice that the debt collector is prohibited from engaging in abusive, deceptive, and unfair debt collection efforts
  • A notice that the consumer has the right to dispute the validity of the debt, including instructions on how to dispute
  • A notice that some forms of income are protected from debt collection

Disclosures for debts for which the statute of limitations may be expired

Under the current regulation, a debt collector must provide specific disclosures to the consumer before it accepts payment when it knows or has reason to know that the statute of limitations for a debt may be expired.  The proposed amendments require a debt collector to include the disclosures in all communications, including the initial disclosures, when it seeks to collect on a debt for which it has determined that the statute of limitations has expired.  (The proposal would change the required disclosures to inform the consumer that the applicable statute of limitations “has expired” rather than that it “may be expired.”)

The proposed amendments would also add a prohibition on oral communications—telephone calls or other means—by a debt collector with a consumer regarding a debt for which the debt collector has determined that the applicable statute of limitations has expired unless the debt collector has directly received from the consumer “prior written and revocable consent” or has the express permission of a court of competent jurisdiction.

It should be noted that the disclosure regarding revival of the statute of limitations that is required by the proposed amendments may conflict with a recent amendment to the New York Civil Practice Law and Rules (S. 153) that was signed into law by Governor Hochul on November 8, 2021 and becomes effective on April 6, 2022.

S. 153 added a new section 2-14-i to the New York Civil Practice Law and Rules that provides:

An action arising out of a consumer credit transaction where a purchaser, borrower or debtor is a defendant must be commenced within three years, except as provided in Section Two Hundred Thirteen-A of this Article or Article 2 of the Uniform Commercial Code or Article 36-B of the General Business Law.  Notwithstanding any other provision of law, any subsequent payment toward, written or oral affirmation of or other activity on the debt does not revive or extend the limitations period.” (emphasis added)

Among the specific disclosures that the proposed amendments would require a debt collector to provide to the consumer before it accepts payment when it knows or has reason to know that the statute of limitations for a debt may be expired is a disclosure that “if the consumer makes any payment on a debt for which the statute of limitations has expired or admits, affirms, acknowledges, or promises to pay such debt, the statute of limitations may restart.”  The model disclosure notice in the proposed amendments includes the statement that:

It is against the law to sue to collect on this debt because the legal time limit (statute of limitations) for suing you to collect this debt has expired.  It is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. section 1692 et seq., to sue to collect on a debt for which the statute of limitations has expired.  If a creditor does sue you to collect on this debt, you may be able to prevent the creditor from obtaining a judgment against you.  To do so, you must tell the court that the statute of limitations has expired.  However, if you make  a payment on the debt, then your creditor or debt collector may be able to sue you in court to collect on the debt.  (emphasis added)

Substantiation of consumer debts

Currently, 23 NYCRR 1 allows debt collectors 60 days to provide written substantiation of a charged-off debt to a consumer if the consumer disputes the validity of the debt in writing and requests substantiation documentation.  The proposed amendments reduce this period to 30 days but would require the dispute to have been made in writing to trigger the debt collector’s obligation to provide written substantiation.  The proposed amendments also add the requirement that a debt collector must provide substantiation by hard copy through the mail.  If the consumer has consented to receive electronic communications from the debt collector, the debt collector would be required to provide substantiation both by mail and electronically.  Debt collectors also currently must retain any requests for substantiation, as well as all documentation sent to the consumer, “until the debt is discharged, sold, or transferred.”  The proposed amendments would require documentation to be retained for the longer of either seven years, or until the debt is discharged, sold, or transferred.

Communication by telephone or through electronic mail

The proposed amendments would add significant limits on both telephone and electronic communications.  The proposed amendments add requirements that a debt collector must comply with to correspond with a consumer electronically to collect a debt.  Such requirements include that the consumer must have voluntarily provided contact information for electronic communications (e.g., email address, a telephone number for text messages) and have given written revocable consent for electronic communications from the debt collector in reference to a specific debt.

With regard to telephone calls, the proposed amendments cap the number of calls a debt collector can make to a consumer absent the consumer’s prior written and revocable consent given directly to the debt collector.  Specifically, the proposed amendments would allow a debt collector to make no more “than one telephone call and three attempted telephone calls per seven-day period per consumer.”  (The one phone call cap can be exceeded in specified circumstances, including when a call is made in response to the consumer’s request to be contacted.)  Because the proposed caps apply on a per consumer basis, they are stricter than those in Regulation F, which allow seven attempts in seven days per debt.

Comments on the pre-proposed amendments were due by November 8.  The DFS will next publish the proposed amendments in the New York State Register, with any changes made based on comments received on the pre-proposal.

 

The CFPB Education Loan Ombudsman has issued his annual report covering the period  from September 1, 2020 through August 31, 2021.

The report includes an analysis of the approximately 5,300 complaints related to private or federal student loans that the Bureau received during that period.  While complaints overall during this period trended lower, the decrease was most pronounced for federal student loan complaints which decreased approximately 32% compared to the prior year. Private student loan complaints decreased approximately 0.8%.  The Bureau cites the CARES Act and other relief measures for federal student loans as the likely reason for the decrease in federal student loan complaints.

Return to repayment and servicer transitions.  The report leaves little doubt that the Bureau will be closely monitoring how student loan servicers respond to the upcoming return to repayment and servicer transitions.  Beginning February 1, 2022, there will be a return to repayment for over 32 million borrowers with federally held loans when extended CARES Act relief measures expire on January 31, 2022.  In addition, there will be a servicing transition for over 16 million federal student loan borrowers as a result of the announcement by two servicers that they will not renew their federal contracts and the announcement that one servicer has been approved to novate its federal contract.  The Bureau calls these events “significant and historic,” and warns that they raise “the potential risk of significant consumer harm” resulting from these events.  The Bureau comments that “[t]here is no historical precedent to gauge the potential scale of the effects that these transitions may have on borrowers, let alone that these transitions are overlapping.”

Most significantly, the Bureau’s discussion strongly suggests that the “new CFPB” is unlikely to provide flexibility or show leniency to servicers in meeting compliance requirements.  The Bureau states that “the potential issues and challenges that may cause borrower confusion and borrower harm are mostly known, and thus, they can be planned for and then mitigated.”  According to the Bureau, “[w]hat is different is that planning and mitigation efforts must be done at scale and done correctly the first time.  Strong leadership at the servicers is required to navigate through these transitions.” The Bureau sets forth its expectations for the tasks that “strong leadership” should undertake to mitigate borrower harm.  It also states that “[t]hough these tasks and others may be delegated, ultimate responsibility and accountability for the success of these transitions cannot be delegated.  Given the magnitude of these transitions, their preparation, planning, and execution are leadership responsibilities that start and end at the C-suite level.  Being unprepared for the transitions is unacceptable.”

The Bureau concludes its discussion of return to repayment and servicing transitions with this warning:

[T]he Bureau has robust monitoring in place for the return to repayment and the servicer transition that includes the ability to identify statistical spikes in the Bureau’s complaints. The Bureau and the Department of Education (ED)/Federal Student Aid (FSA) are working collaboratively on the return to repayment and the servicer transition.  The Bureau and FSA proactively share complaint information and analysis in accordance with the January 31, 2020 Memorandum of Understanding.

In addition to the recommendations to improve transparency and accountability discussed below, the Bureau also makes recommendations to policymakers regarding return to payment and servicing transition.  These recommendations include giving consideration to the following:

  • Because not every federal loan payment will be due on February 1, 2022 and there will be a narrow window within which loans will have different due dates, deliberately staging the return to repayment during this window in a manner that will most likely result in the successful return to repayment for the greatest number of borrowers
  • Structuring future federal servicing contracts so that they do not all expire at nearly the same time
  • Requiring all servicers to submit “Lessons Learned” documents that should start with the implementation of CARES Act relief, and include challenges during the pandemic (as well as best practices), and challenges during the return to repayment and servicer transition (as well as best practices)

Transparency and accountability.  The Bureau discusses a number of issues and makes a number of recommendations that do not clearly fall within its jurisdiction, such as what should be taught at law schools, tenure requirements, and the length of bachelor degree programs.  The wide-ranging nature of the Bureau’s discussion and recommendations suggests that the “new CFPB” is likely to “push the envelope” in asserting its jurisdiction with regard to schools, particularly for-profit schools.

Issues discussed in the report include:

  • Marketing claims by schools that could create false impressions of affordability, particularly where such claims present an access issue because they do not apply to all applicants.
  • School policies that place a hold on transcripts for nonpayment of items such as fees and parking, which could have a large disparate impact, particularly on vulnerable populations.  (A California law that became effective on January 1, 2020 prohibits postsecondary schools from withholding transcripts as a debt collection tool.)

Recommendations to policymakers include that they:

  • Consider an appropriate metric or system of metrics to measure school and program accountability
  • Accelerate efforts to incorporate qualitative and quantitative metrics that protect consumers into future federal student loan servicing contracts
  • Require detailed disclosures for every student loan disbursement, such that borrowers know how much they owe, what their projected monthly payments will be, the duration of their monthly payments, and how much they will pay in interest, and consider providing financial counseling with such disclosures

 

 

At the end of last month, the CFPB sent orders to six large technology platforms offering payment services that directs them to provide information to the Bureau about their payments products and services and their collection and use of personal payments data.

On November 5, 2021, the CFPB published a notice in the Federal Register seeking public comments to inform its inquiry.  The notice states that the Bureau invites comments from “any interested parties, including consumers, small businesses, advocates, financial institutions, investors, and experts in privacy, technology, and national security.”  Comments must be received on or before December 6, 2021.