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  • Florida Attorney General Rolls Out Military Consumer Protection Program; CFPB Publishes Annual Servicemember Report

    Consumer Finance

    On May 17, Attorney General Pam Bondi announced a new consumer protection program designed to spread awareness and help prevent deceptive business practices affecting military and veteran communities. The Military and Veterans Assistance Program (MVAP) will provide resources and information to consumers on emerging scams and other consumer protection related issues, as well as encourage open communication among local, state, and federal partners to help ensure complaints are handled appropriately.

    On May 16, the CFPB’s Office of Servicemember Affairs (OSA) published its fifth annual servicemember report, The Office of Servicemember Affairs: Charting our course through the military lifecycle, and a follow-up blog post outlining the work the office has conducted over the past five years and the work it intends to do in the future. The structure of the report—designed to be presented within the construct of the “military lifecycle”—presents the ways that “many common and some uniquely-military consumer issues . . . fit within that continuum.” Under the Dodd-Frank Act, OSA monitors servicemember complaints about consumer financial products or services and coordinates with the efforts of federal and state agencies to improve measures and provide assistance. As of April 1, 2017, the OSA reports that it has handled approximately 74,800 complaints submitted by servicemembers, veterans, and their families since July 2011, of which 42 percent related to debt collection, 18 percent to mortgages, and 11 percent to credit reporting. In total, the OSA claims it has provided approximately $3.3 million in monetary relief to military consumers who submitted complaints to the CFPB.

    Consumer Finance State AG Consumer Education Servicemembers

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  • OIG Recommends CFPB Improve Enforcement Data Security

    Consumer Finance

    On May 15, the Office of Inspector General for the Consumer Financial Protection Bureau issued findings in a report entitled The CFPB Can Improve Its Practices to Safeguard the Office of Enforcement’s Confidential Investigative Information (the Report), stemming from an evaluation to determine whether the Bureau has effective controls to manage and safeguard access to Confidential Investigative Information (CII). The Report found that the Bureau’s practices could be improved. According to the findings, the Bureau’s Office of Enforcement (Office) allowed 113 unique users to have access to databases in which there was CII—which may include personally identifiable information—about companies that were subject to reviews by enforcement staff. Of those 113 users, 72 were still employed by the CFPB but did not have a need for access to that information, the report said.

    Specifically, the OIG determined users continued to have access to at least one electronic application when it was no longer relevant to the performance of the users’ assigned duties. The OIG also cited instances of improper handling and safeguarding of sensitive information and inconsistent naming conventions for matters across its four electronic applications and two internal drives, which impeded the Office’s ability to verify, maintain, and terminate access to files. The OIG noted in the report that during its assessment the Office took several steps to correct these issues.

    The OIG presented the following recommendations: (i) enhance practices for managing access rights to matter folders; (ii) improve the handling of printed sensitive information; and (iii)establish a standard naming convention for electronically stored information.

    Consumer Finance CFPB Federal Reserve OIG

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  • City of Philadelphia Sues National Bank for Discriminatory Lending Practices

    Lending

    On May 15, the City of Philadelphia filed a lawsuit against a national bank (Bank) alleging that it violated the Fair Housing Act by engaging in discriminatory lending practices that targeted minority borrowers. (See City of Phila. v. Wells Fargo & Co., Case No. 2:17-cv-02203-LDD, 2017 WL 2060317 (E.D. Pa.).) The complaint alleges that beginning in 2004 and continuing through the present, the Bank engaged in “a continuous and unbroken discriminatory pattern and practice of issuing higher cost or more onerous mortgage loans to minority borrowers” while offering better terms to similarly situated non-minority borrowers. The City’s complaint alleges discrimination under both disparate treatment and disparate impact theories. The City claims that the Bank has a long history of both redlining (the practice of refusing to make loans in minority neighborhoods) and reverse redlining (the practice of targeting higher cost loans or loans with less favorable terms to minority neighborhoods). The complaint further describes a pattern of knowing and intentional discrimination by the Bank, relying on statistical analyses finding, among others, that: (i) a loan for a home in a predominantly minority neighborhood was 4.7 times more likely to go into foreclosure than a loan on a home in a mainly white neighborhood; (ii) African American and Latino borrowers were more than twice as likely to receive a high-cost loan as white borrowers; and (iii) when credit scores were factored in for borrowers with FICO scores of more than 660, African American borrowers were more than 2.5 times more likely than white borrowers to receive a high cost loan, and Latino borrowers more than twice as likely. As a result of the foreclosures and vacant homes, the City says it suffered a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services.

    City of Miami Suit. As previously covered in InfoBytes, the Supreme Court recently ruled that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the Fair Housing Act (FHA) against lenders for injuries allegedly flowing from discriminatory lending practices, although the five-justice majority held that such injuries must be proximately caused by the FHA violations. The Supreme Court returned the City’s lawsuit to the U.S. Court of Appeals for the Eleventh Circuit because, while the Court found that the City’s injuries appeared to be a foreseeable result of the lender’s practices, this was not enough to establish proximate cause. Therefore, it remains to be seen whether the City can show proximate cause.

    Lending Courts FHA Mortgage Lenders Consumer Finance

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  • PHH v. CFPB Update: D.C. Circuit Hears Oral Arguments Before En Banc Court

    Courts

    On May 24, the en banc U.S. Court of Appeals for the D.C. Circuit heard oral arguments in the matter of PHH Corp. v. CFPB. The parties and the Department of Justice generally presented their arguments as expected based on their briefs. However, questions from some members of the court indicated doubts about the conclusion by a panel of the court in October 2016 that the CFPB’s structure was unconstitutional. In particular, multiple members of the court repeatedly pressed PHH’s counsel on whether prior Supreme Court decisions upholding the constitutionality of the Federal Trade Commission and other independent agencies led by presidential appointees who could only be removed “for cause” prevented the D.C. Circuit from concluding that the president lacked sufficient authority over the CFPB’s Director.

    Notably, however, in response to statements by PHH that current CFPB Director Richard Cordray could remain in his position after the expiration of his term in July 2018 until a successor was confirmed by the Senate, the CFPB’s counsel stated that, in the Bureau’s view, the “for cause” removal limitation no longer applied once the Director’s term expired, and the president could then remove the Director “at will.”

    In contrast to the constitutional issue, the questioning on other aspects of the case was minimal and did not indicate that the en banc court was inclined to revisit the panel’s determination that the CFPB misinterpreted the Real Estate Settlement Procedures Act (RESPA) when applying it to PHH’s practices, violated due process by failing to give PHH proper notice of its interpretation, and improperly failed to apply RESPA’s statute of limitations in its administrative proceedings.

    At the direction of the en banc court, the oral arguments in PHH followed those in Lucia v. SEC, a case addressing whether the SEC’s administrative law judges (ALJs) violate the appointments clause of the U.S. Constitution. Although this issue was not discussed during the PHH oral arguments, the CFPB originally brought its claims against PHH before an ALJ borrowed from the SEC and the court had previously suggested that a finding that the SEC ALJs were improperly appointed could also justify reversal of the CFPB’s decision against PHH. (See previous Special Alert here.)

    A decision from the en banc court is not expected for months. Importantly, while questioning during oral argument is often used as a barometer of the potential outcome of a case, the questions asked by a judge do not necessarily indicate how that judge will vote on a particular issue. Judges often use oral argument to see how the parties and their colleagues will respond to hypotheticals, rather than to share their views of the case.

    Courts Consumer Finance CFPB RESPA PHH v CFPB

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  • Company Accused of Bilking 9/11 First Responders Out of Millions of Dollars Says CFPB Action Unlawful

    Courts

    On May 15, a New Jersey-based finance company and its affiliated parties filed a motion to dismiss allegations that it scammed first responders to the World Trade Center attack and NFL retirees with high-cost loans. As previously covered in InfoBytes, the CFPB and the New York Attorney General’s office (NYAG) claimed the defendants engaged in deceptive and abusive acts by misleading consumers into selling expensive advances on benefits to which they were entitled by mischaracterizing extensions of credit as assignments of future payment rights, thereby causing the consumers to repay far more than they received. The defendants’ motion to dismiss was prompted, in part, by the recent PHH v. CFPB decision in which the court held that the CFPB’s single director leadership structure is unconstitutional and, thus, that the agency must operate as an executive agency supervised by the President. Here, the defendants argue, the complaint issued against them is a “prime example of how the unchecked authority granted to the CFPB leads to administrative overreach that has a profound effect on the businesses and individuals the agency targets.”

    In response to the claims that they mischaracterized credit, the defendants assert that the complaint is “based on the erroneous theory that—despite clear contractual terms and the weight of legal authority to the contrary—these transactions are not true sales, but instead are ‘extensions of credit’ under the Consumer Financial Protection Act [(CFPA)], and therefore the [defendants] deceived consumers by labeling the agreements as sales.” The CFPA defines an extension of “credit” as “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.” In this instance, the defendants contend, there is no debt, no repayment obligation, and no “right granted to defer payment of a debt” because the consumers are the sellers of the asset.

    The defendants argue that (i)“the CFPB’s unprecedented structure violates fundamental constitutional principles of separation of powers, and the CFPB should be struck down as an unconstitutional administrative agency”; (ii) because these transactions do not fall into the CFPA’s definition of credit, the case lacks a federal cause of action; and (iii) “each cause of action in the [c]omplaint individually fails to state a claim for relief, including because the Government is flat out wrong in its contention that the underlying settlement proceeds are not assignable.”

    Courts Consumer Finance CFPB Enforcement State AG PHH v CFPB UDAAP

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  • CFPB, DOJ Argue Against State AGs Request to Redirect Unused Consumer Redress Funds

    Courts

    On May 10, the CFPB filed a brief and the DOJ filed a separate “Statement of Interest of the United States of America” opposing a request by the Attorneys General of Connecticut, Indiana, Kansas, and Vermont (State AGs) to intervene in a CFPB lawsuit to address the distribution of unclaimed settlement funds.

    As previously reported in InfoBytes, in December 2014 the CFPB sued a telecommunications company over allegations that it violated Dodd-Frank and the Consumer Financial Protection Act by knowingly allowing third-party aggregators to bill unauthorized charges to its wireless telephone customers and failing to respond to consumer complaints for nearly a decade. Under the terms of the 2015 Stipulated Final Judgment and Order, the company was required to set aside $50 million for consumer redress. The consumer claims period expired with approximately $15 million remaining unclaimed, and the State AGs sought to have those funds deposited with the National Association of Attorneys General to be used for “consumer protection purposes.” Specifically, in their  January 3 Memorandum in Support of Joint Motion to Intervene to Modify Stipulated Final Judgment and Order, the State AGs asked that, “[a]ny funds not used for such equitable relief will be deposited . . . with the National Association of Attorneys General”—instead of being deposited in the Treasury as disgorgement—to be used to “train, support and improve the coordination of the state consumer protection attorneys charged with enforcement of the laws prohibiting the type of unfair and deceptive practices alleged by the CFPB in this [a]ction.”

    In its memorandum opposing the joint request to intervene, the CFPB countered that although the redress plan provides that the Bureau may, in consultation with certain states and the FCC, apply unused redress funds to “other equitable relief reasonably related to the Complaint’s allegations,” it has not proposed doing so and any undistributed amounts are to be directed to the Treasury. The DOJ supported the CFPB’s position, arguing that the State AGs’ motion is untimely because that the States were “well aware of this action” over 18 months before filing their motion. The DOJ further asserted that “beyond being consulted by the CFPB if remaining funds were to be devoted to further equitable relief, the Consent Order afforded the States no role with respect to distribution of the remaining Redress Amount funds.”

    Courts Consumer Finance CFPB DOJ State AG

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  • FDIC Fines Wisconsin Bank and Affiliated Lenders for Overcharging Military Members

    Consumer Finance

    On May 11, the FDIC announced that a Wisconsin-based bank and its two institution-affiliated parties agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act. According to the FDIC, the unfair and deceptive practices, which harmed consumers including military service members and their families, included: (i) charging interest on loans that were marketed as interest-free if they were repaid within six months; (ii) selling add-on products without clearly disclosing the terms; and (iii) not allowing consumers the opportunity to use the monthly premium-payment option when they bought debt cancellation products. Under the terms of the settlement with the FDIC, the bank will establish a $3 million restitution fund for eligible consumers (and has agreed to add more if that amount is insufficient to make all of the required payments). In addition, the bank and its institution-affiliated parties are required to: (i) prepare a comprehensive restitution plan; (ii) retain an independent auditing firm to determine compliance with the plan; and (iii) provide the FDIC with quarterly written progress reports describing the actions taken by the parties to comply with the terms of the settlement. The settlement also requires the bank to pay a civil penalty of $151,000, and the institution-affiliated parties to pay civil money penalties of $54,000 and $37,000 respectively.

    Consumer Finance FDIC UDAAP FTC

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  • New York AG Announces Settlement with Virginia Developer for Violating Servicemembers Civil Relief Act

    Federal Issues

    On May 10, New York Attorney General Eric T. Schneiderman announced that a Virginia-based company has agreed to pay $69,000 to settle allegations that, among other things, it violated the Servicemembers Civil Relief Act (SCRA) by unlawfully charging fees to servicemembers who terminated their residential leases early. Under the provisions of the SCRA, servicemembers and their families are allowed to terminate leases early without penalty if they are deployed, receive orders for permanent change of station, or their military service is honorably terminated. According to the Attorney General’s office, the company—which owns a community of townhomes in close proximity to Fort Drum and actively markets its housing to servicemembers and their families—also violated New York law by including “numerous unconscionable provisions” in its lease agreements, and advertising amenities that were either not included in the rent, or unavailable. Under the terms of the settlement, the company must pay more than $59,000 to over 125 servicemembers, reform its lease and other business practices to comply with New York law, and pay a civil money penalty of $10,000 to the State.

    Federal Issues Consumer Finance SCRA Servicemembers State AG

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  • D.C. Circuit Holds CID Unenforceable Due to “Perfunctory” Notification of Purpose

    Courts

    On April 21, the U.S. Court of Appeals for the D.C. Circuit held that a civil investigative demand (“CID”) did not advise a non-profit organization that accredits for-profit colleges of “’the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation.’ 12 U.S.C. § 5562(c)(2).” See CFPB v. Accrediting Council for Indep. Colls.& Schs., [Order] No. 16-5174 (D.C. Cir. Apr. 21, 2017). The CID described “the nature of the conduct” as simply “unlawful acts and practices in connection with accrediting for-profit colleges.” Because this “broad and non-specific” language did not describe the purpose of the CFPB’s investigation, the Court determined that it could not ascertain whether the information sought was reasonably relevant or “the link between the relevant conduct and the alleged violation.” The Court also found that the description of the laws applicable to the violation was inadequate. The CID identified 12 U.S.C. §§ 5531 and 5536 and “any other Federal consumer financial protection law,” but the Court concluded that the citations “tell … nothing about the statutory basis for the Bureau’s investigation” considering the CFPB’s failure to identify “the specific conduct under investigation.” Notably the Court explicitly limited its ruling to the particular CID at issue and declined to address the broader question of whether the CFPB may investigate accreditation of for-profit schools.

    Courts Consumer Finance Agency Rulemaking & Guidance CFPB

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  • Oklahoma Governor Vetoes Legislation Expanding High-Cost Payday Lending

    Consumer Finance

    On May 5, Oklahoma Governor Mary Fallin vetoed legislation that would have expanded consumer payday lending in the state. Oklahoma House Bill 1913—known as the “Oklahoma Small Loan Act”—would have allowed lenders to offer installment loans with terms no longer than 12 months and interest rates up to 17 percent per month. Fallin’s veto message to the House expressed concerns about adding another high interest loan product without eliminating or restricting existing payday loan products: “House Bill 1913 adds yet another level of high interest borrowing (over 200% APR) without terminating or restricting access to existing payday loan products.” Fallin further asserted that “some of the loans created by this bill would be more expensive than the current loan options.” Four years prior, Fallin vetoed Senate Bill 817 “due to [her] concerns with the frequency [with which] low-income families in Oklahoma were using these lending options, and the resulting high cost of repayment to those families.” In the veto message, Fallin requested that the state legislature seek advice from her office as well as consumer advocates and mainstream financial institutions if it decides to revisit these issues. Under Section 11 of Article 6 of the Oklahoma Constitution, the legislation can still be enacted if two-thirds of the members of both legislative chambers vote to override the veto. In earlier votes, the legislation fell short of the two-thirds threshold, passing the Oklahoma House 59-31 and the Senate by a 28-16 margin.

    Notably, last year, the CFPB published proposed rules in the Federal Register affecting payday, title, and certain other high-cost installment loans (see previously posted Special Alert).

    Consumer Finance State Issues Payday Lending CFPB

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