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Financial Services Law Insights and Observations

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  • CFPB publishes quarterly report examining how natural disasters affect credit reporting

    Federal Issues

    On November 21, the CFPB released the latest quarterly consumer credit trends report, which examines how natural disasters affect consumers’ credit reports based on a sample of approximately 5 million credit records. The report notes that while financial institutions are not required to report natural disaster assistance information, in 2017, about 8.3 percent of consumer credit reports included information in a special comment code labeled “affected by natural or declared disasters,” which the CFPB states is similar to the Federal Emergency Management Agency’s estimate that roughly 8 percent of U.S. residents were affected by natural disasters in 2017. Additionally, the report summarizes the natural disaster reporting trends for consumers in the Greater Houston area affected by Hurricane Harvey. Highlights of the report include (i) almost 40 percent of consumers with a credit report in the Greater Houston area received a comment code regarding the hurricane after it hit; (ii) the most common type of tradeline to receive a natural disaster comment code are mortgage loans; and (iii) accounts that received the natural disaster comment code are associated with higher rates of delinquency prior to Hurricane Harvey.

    Federal Issues CFPB Mortgages Credit Report Disaster Relief

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  • Freddie Mac releases various selling updates in Guide Bulletin 2018-15

    Federal Issues

    On September 19, Freddie Mac released Guide Bulletin 2018-15, which announces selling updates, including revisions to requirements for authorized user accounts and super conforming mortgages. Specifically, when reviewing a borrower’s credit report for tradelines where a borrower is listed as an authorized user but is not the primary account holder, sellers only have to meet additional documentation requirements if they receive a feedback message containing further instructions. These changes are effective for submissions and resubmissions made on or after October 4. The Bulletin also states that effective for mortgages settled on or after December 19, Freddie Mac will no longer require the manual underwriting of super conforming mortgages with original loan amounts greater than $1 million.

    Additionally, starting October 15, enhancements to the automated cash specified payups process will take effect, which will, among other things, “include cash payups for fixed-rate [m]ortgages with certain specified loan attributes.” The Bulletin also eliminates the requirement for sellers to obtain additional documentation or evaluate the income or loss from secondary self-employment when none of this income is used for mortgage qualification purposes. Furthermore, as of September 9, as previously covered in InfoBytes, Bulletin 2018-13 updated the required time frame for evaluating credit report inquiries; it has been reduced from 120 days to 90 days.

    Federal Issues Freddie Mac Mortgages Credit Report Consumer Finance

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  • 6th Circuit holds that failing to report a trial modification plan can constitute incomplete reporting under FCRA

    Courts

    On August 23, the U.S. Court of Appeals for the 6th Circuit held that a borrower met the requirements necessary for a Fair Credit Reporting Act (FCRA) claim to proceed when two mortgage servicers failed to report the existence of a trial modification plan when reporting the borrower was delinquent to reporting agencies. In 2014, a borrower brought an action against three credit reporting agencies and two mortgage servicers alleging, among other claims, violations of the FCRA due to payments being reported as past due while successfully making payments under a trial modification plan (also referred to as a Trial Period Plan, or “TPP”) and working towards a permanent modification. Regarding the FCRA claim, the 6th Circuit reversed the lower court’s decision granting the servicers’ motion for summary judgment, finding that the borrower met the statutory requirements for an FCRA claim because failing to report the existence of a TPP can constitute “incomplete reporting” in violation of the statute. The 6th Circuit rejected the servicers’ argument that the Home Affordable Modification Program guidelines “encouraged, but did not require” that they report a TPP. The court acknowledged this distinction but noted that “[r]eporting that [a borrower] was delinquent on his loan payments without reporting the TPP implies a much greater degree of financial irresponsibility than was present here.” The court remanded the case to the district court to determine whether the servicers conducted a reasonable investigation after the borrower disputed the reporting.

    Courts Sixth Circuit Mortgages Loss Mitigation Mortgage Servicing Credit Report Credit Reporting Agency FCRA HAMP Consumer Finance

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  • District Court agrees with FTC, enters $5 million judgment against credit monitoring scheme

    Courts

    On June 26, the U.S. District Court for the Northern District of Illinois granted the FTC’s motion for summary judgment, concluding that no reasonable jury would find that the defendants’ scheme of using false rental property ads to solicit consumer enrollment in credit monitoring services without their knowledge did not involve unfair or deceptive practices. The FTC argued that the defendants’ scheme, which used the promise of a free credit report to enroll the consumers into a monthly credit monitoring program, violated the FTC Act’s ban on deceptive practices. The court agreed, holding that the ad campaign was “rife with material misrepresentations that were likely to deceive a reasonable consumer.” Additionally the court agreed with the FTC that the defendants’ website was materially misrepresentative because it did not give “the net impression that consumers were enrolling in a monthly credit monitoring service” for $29.94 a month, as opposed to defendants’ claim that consumers were obtaining a free credit report.

    The court entered a judgment ordering the defendants to pay over $5 million in equitable monetary relief to the FTC and prohibiting defendants from, among other things, charging consumers for any credit monitoring services and disclosing or using any collected consumer information. The defendants must also submit to compliance reporting and monitoring by the FTC.

    Courts FTC Act Credit Report Credit Monitoring FTC

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