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  • 3rd Circuit reverses district court’s decision, rules TILA provisions misapplied to unauthorized-charge suit

    Courts

    On May 16, the U.S. Court of Appeals for the 3rd Circuit reversed a district court’s decision, holding that the lower court, among other things, misapplied a TILA provision under Regulation Z that requires cardholders to dispute charges within 60 days of the “first periodic statement that reflects the alleged billing error.” According to the opinion, the plaintiff-appellant filed a suit against the bank after he was allegedly rebilled for a $657 fraudulent money transfer charge that originally appeared on his statement in July 2015. The charge was originally removed from his account but reappeared in mid-September of that year after the bank claimed the charge was valid after verifying transaction details. The plaintiff-appellant challenged the decision in writing, and later filed a complaint against the bank, alleging he had “timely submitted a written notice of billing error,” and that the bank “had neither credited the charge nor conducted a reasonable investigation” and imposed liability of more than $50. The district court dismissed the complaint with prejudice for failure to state a claim, which the plaintiff appealed.

    At issue, the three-judge panel determined, were two provisions under TILA: (i) the “Fair Credit Billing Act” (FCBA), which stipulates that creditors must “comply with particular obligations when a consumer has asserted that his billing statement contains an error,” and (ii) the “unauthorized-use provision,” which requires certain conditions to be met before a credit card issuer can hold the cardholder liable, up to a limit of $50, for any unauthorized use. The panel first addressed the district court’s finding that the bank’s obligations under FCBA were “never triggered” because his written notice came 63 days after the July statement first included the charge. The panel held that, because the plaintiff-appellant’s August billing statement showed a credit to his account for the charge and that “there was no longer anything to dispute” and no reason to believe his statement contained a billing error, the 60-day time limit should have started when the bank rebilled him in September. In addressing the second issue, the district court held that plaintiff-appellant was not entitled to “reimbursement” under the unauthorized-use claim. However, the panel opined that he was not seeking reimbursement but rather “actual damages,” for which the statute does provide relief. “We conclude that a cardholder incurs ‘liability’ for an allegedly unauthorized charge when the issuer, having reason to know the charge may be unauthorized, bills or rebills the cardholder for that charge,” the panel wrote.

    Courts Third Circuit Appellate Fair Credit Billing Act TILA Regulation Z Consumer Finance

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  • Mortgage servicer must face TCPA allegations after court dismisses other claims

    Courts

    On May 2, the U.S. District Court for the Eastern District of New York granted in part and denied in part a mortgage loan owner and mortgage loan servicer’s motion to dismiss a consumer’s lawsuit alleging various violations of TILA, RESPA, FDCPA, TCPA and certain New York state laws. The court’s decision explains that the mortgage loan owner first initiated foreclosure proceedings against the consumer in 2009, but in August 2013 that action was dismissed and the parties executed a modification agreement. The consumer argues in the amended complaint that the mortgage debt is time-barred based on the six year statute of limitations to enforce the mortgage note, starting the clock with the 2009 foreclosure filing. The consumer alleges that after the statute of limitations expired, the mortgage servicer contacted the consumer by mail and by telephone to collect the mortgage debt, totaling over 600 calls placed by an autodialer and up to four threatening collection letters per month since 2015. The court, however, agreed with the mortgage companies that the execution of the 2013 modification agreement restarted the statute of limitations and therefore, the consumer’s alleged violations of New York state laws and the FDCPA failed because the mortgage debt was not time-barred. The court also held that the consumer failed to plead sufficient facts to support the alleged violations of TILA, RESPA, and New York’s General Business Law. In contrast, the court denied the mortgage servicer’s motion to dismiss the consumer’s claim under the TCPA, holding that the mortgage application signed by the consumer did not clearly consent to contact by an autodialer on his cell phone.

     

    Courts Mortgages TILA RESPA TCPA

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  • CFPB finalizes KBYO amendment to address “black hole”

    Agency Rule-Making & Guidance

    On April 26, the CFPB issued a final amendment to its “Know Before You Owe” mortgage disclosure rule to address when mortgage lenders with a valid changed circumstance or other justification are permitted to reset tolerances and pass on increased closing costs to consumers using the Closing Disclosure. Last summer, as previously covered in a Buckley Sandler Special Alert, the Bureau published a proposal seeking public comment on whether to close the “black hole” that prohibited creditors from passing on cost increases (particularly rate lock extension fees) when closing was significantly delayed after the Closing Disclosure. After considering comments, the Bureau finalized the proposed amendment. The final amendment will take effect 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance CFPB TRID Mortgages Disclosures TILA RESPA

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  • Federal Reserve releases updates to interagency examination procedures for Regulations X and Z

    Agency Rule-Making & Guidance

    On April 19, the Federal Reserve Board (Fed) issued a consumer affairs letter (CA 18-3) announcing revised interagency examination procedures for Regulation X (RESPA) and Regulation Z (TILA) that supersede procedures previously issued in September 2015. The updated procedures account for amendments to mortgage servicing rules under Regulations X and Z that took effect October 19, 2017 (see previous InfoBytes coverage here), as well as amendments to Regulation Z published by the CFPB through April 2016, including rules concerning small creditors’ mortgage lending to rural and underserved areas. However, the Fed stated in its letter that, at this time, the updated procedures do not incorporate Regulation Z amendments concerning the CFPB’s TILA-RESPA integrated disclosure rule or those regarding prepaid accounts. These amendments will be addressed in a future update.

    Agency Rule-Making & Guidance Federal Reserve CFPB Regulation X Regulation Z RESPA TILA Mortgages Mortgage Servicing

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  • Senate passes bipartisan financial regulatory reform bill

    Federal Issues

    On March 14, by a vote of 67-31, the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) (the bill)—a bipartisan regulatory reform bill crafted by Senate Banking, Housing, and Urban Affairs Committee Chairman Mike Crapo, R-Idaho—that would repeal or modify provisions of Dodd-Frank and ease regulations on all but the biggest banks. (See previous InfoBytes coverage here.) The bill’s highlights include:

    • Improving consumer access to mortgage credit. The bill’s provisions state, among other things, that: (i) banks with less than $10 billion in assets are exempt from ability-to-repay requirements for certain qualified residential mortgage loans; (ii) appraisals will not be required for certain transactions valued at less than $400,000 in rural areas; (iii) banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether); (iv) amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines; and (v) the CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.
    • Regulatory relief for certain institutions. Among other things, the bill simplifies capital calculations and exempts community banks from Section 13 of the Bank Holding Company Act if they have less than $10 billion in total consolidated assets. The bill also states that banks with less than $10 billion in assets, and total trading assets and liabilities not exceeding more than five percent of their total assets, are exempt from Volcker Rule restrictions on trading with their own capital.
    • Protections for consumers. Included in the bill are protections for veterans and active-duty military personnel such as: (i) permanently extending the protection that shields military personnel from foreclosure proceedings after they leave active military service from nine months to one year; and (ii) adding a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses general consumer protection options such as expanded credit freezes and the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to TILA consumer protections.
    • Changes for bank holding companies. Among other things, the bill raises the threshold for automatic designation as a systemically important financial institution from $50 billion in assets to $250 billion. The bill also subjects banks with $100 billion to $250 billion in total consolidated assets to periodic stress tests and exempts from stress test requirements entirely banks with under $100 billion in assets. Additionally, certain banks would be allowed to exclude assets they hold in custody for others—provided the assets are held at a central bank—when computing the amount such banks must hold in reserves.
    • Protections for student borrowers. The bill’s provisions include measures to prevent creditors from declaring an automatic default or accelerating the debt against a borrower on the sole basis of bankruptcy or cosigner death, and would require the removal of private student loans on credit reports after a default if the borrower completes a loan rehabilitation program and brings payments current.

    The bill now advances to the House where both Democrats and Republicans think it is unlikely to pass in its current form.

    Federal Issues Federal Legislation Bank Regulatory Dodd-Frank S. 2155 CFPB HMDA Mortgages Licensing TILA TRID Servicemembers Volcker Rule Student Lending Consumer Finance Bank Holding Companies Community Banks Privacy/Cyber Risk & Data Security

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  • Virginia Attorney General sues pension sale lender who targeted retired veterans and government employees; obtains full restitution for customers of online lender

    State Issues

    On March 7, the Virginia Attorney General took action against Delaware- and Nevada-based installment lenders (defendants) for allegedly making illegal loans with excessive annual interest rates that were disguised as “lump sum” cash payouts to Virginia consumers, in violation of the Virginia Consumer Protection Act (VCPA). According to the complaint, the defendants disguised the high interest loans to Virginia pensioners as “Purchase and Sale Agreements” involving a “sale” or “pension advance” in an effort to bypass consumer lending laws, including TILA and Regulation Z disclosure requirements. Furthermore, the complaint alleges that the loans charged interest rates as high as 183 percent, far exceeding the state’s 12 percent annual usury cap, but because they were misrepresented as sales, defendants avoided potential private actions brought by consumers to recover excessive interest payments. The complaint seeks injunctive and monetary relief.

    Separately, on February 23, the Virginia Attorney General announced a settlement with a group of affiliated online lenders and debt collectors (defendants) to resolve violations of the VCPA through the offering of unlawful open-end credit plan loans and engaging in illegal debt collection practices. According to the Assurance of Voluntary Compliance approved earlier in February, between January 2015 through mid-June 2017, the defendants (i) offered open-end credit plan loans and imposed bi-monthly “service fees” that—when calculated with the advertised interest—greatly increased the loan’s cost and exceeded the state’s 12 percent annual limit; (ii) imposed illegal finance charges and other service fees on borrowers during the required 25-day grace period; (iii) contacted consumers in an effort to collect on these loans; and (iv) contacted the consumers' employers to implement wage assignments and garnish wages from consumers' paychecks. Under the terms of the settlement, defendants will provide nearly $150,000 in restitution and debt forgiveness, pay $105,000 in civil penalties and attorneys’ fees, and are permanently enjoined from consumer lending and debt collection activities in the state.

    State Issues State Attorney General Predatory Lending Settlement TILA Regulation Z

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  • CFPB releases 2018 lists of rural, underserved counties

    Agency Rule-Making & Guidance

    On March 6, the CFPB released its annual list of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions under certain TILA regulatory requirements. In addition to these lists, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved property qualifies for safe harbor for purposes of Regulation Z.

    Agency Rule-Making & Guidance CFPB TILA Regulation Z Consumer Finance Lending

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  • 8th Circuit holds lender properly delivered TILA disclosures

    Courts

    On February 28, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s decision to grant summary judgment in favor of a national mortgage lender concluding that a borrower’s signed acknowledgment of receipt of TILA’s material disclosures and rescission notice created a rebuttable presumption that the borrowers had received the required number of notices under the law. According to the opinion, the borrowers sought to rescind their mortgage loan on a date close to three-years after settlement, arguing that the lender did not provide the requisite number of copies of required disclosures under TILA. TILA allows for rescission within three days of settlement unless the lender fails to deliver the required notice or material disclosures, which extends the rescission period to three years. After the lender denied the borrower’s request for rescission, a district court dismissed the action as untimely, asserting that the suit must be filed within the same three-year window. Ultimately, in 2015, the Supreme Court held that the three-year period applied to the borrower’s notice of rescission, and not the filing of the lawsuit.

    On remand, the district court granted summary judgment in favor of the lender. In affirming the district court’s decision, the 8th Circuit disagreed with the borrower’s position that while they signed an acknowledgment of receipt of the required disclosures, the acknowledgment did not state that each “acknowledge receipt of two copies each.” The circuit court concluded that the signed acknowledgment is “unambiguous and gives rise to the presumption” of proper delivery and each signature by the borrower indicates personal receipt of two copies each.

    Courts Eighth Circuit Appellate TILA Mortgages Disclosures U.S. Supreme Court

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  • District judge rules financing contingency clause in retail installment contract does not violate TILA

    Courts

    On February 12, a federal judge in the U.S. District Court for the Eastern District of California held that a financing contingency clause in a retail installment contract (contract) did not violate the Truth in Lending Act (TILA). The clause provided that the dealership (defendant) could cancel the contract if it could not assign it to a financial institution on terms acceptable to the seller. According to the opinion, the plaintiff signed the contract with the defendant to purchase a car after being told she was approved for financing; however, the defendant later contacted the plaintiff and informed her that it was unable to assign her loan to a third party bank and demanded that she “return to the dealership with a co-signor or surrender the [v]ehicle.” The plaintiff asserted that “she never received a written notice explaining why [the] defendant [had] revoked its extension of credit” or why it had cancelled the contract. Among other things, the plaintiff argued that the defendant’s actions violated (i) TILA when it inserted a seller’s right to cancel provision in the contract, and (ii) a “breach of ‘good faith and fair dealing obligation.’” However, with respect to TILA, the judge found no violation, holding that while TILA requires certain disclosures for the purpose of avoiding the “uninformed use of credit,” it does not prohibit the inclusion of financing contingencies. Here, the contract included all required elements under TILA and the properly disclosed credit terms were not rendered meaningless or invalid just because the dealership reserved a unilateral right to rescind the contract. The judge further dismissed the breach of good faith claim, noting that the defendant was acting within the allowed terms of the right to cancel provision.

    Courts TILA Auto Finance

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  • House passes bill that would effectively overturn Madden; others amend RESPA disclosure requirements and adjust points and fees definitions under TILA

    Federal Issues

    On February 14, in a bipartisan vote of 245-171, the House passed H.R. 3299, the “Protecting Consumers Access to Credit Act of 2017,” to codify the “valid-when-made” doctrine and ensure that a bank loan that was valid as to its maximum rate of interest in accordance with federal law at the time the loan was made shall remain valid with respect to that rate, regardless of whether the bank subsequently sells or assigns the loan to a third party. As previously covered in InfoBytes, this regulatory reform bill would effectively overturn the 2015 decision in Madden v. Midland Funding, LLC, which ruled that debt buyers cannot use their relationship with a national bank to preempt state usury limits. Relatedly, the Senate Banking Committee is considering a separate measure, S. 1642.

    The same day, in a separate bipartisan vote of 271-145, the House approved H.R. 3978, the “TRID Improvement Act of 2017,” which would amend the Real Estate Settlement Procedures Act of 1974 (RESPA) to modify disclosure requirements applicable to mortgage loan transactions. Specifically, the bill states that “disclosed charges for any title insurance premium shall be equal to the amount charged for each individual title insurance policy, subject to any discounts as required by either state regulation or the title company rate filings.”

    Finally, last week on February 8, the House voted 280-131 to pass H.R. 1153, the “Mortgage Choice Act of 2017,” to adjust definitions of points and fees in connection with mortgage transactions under the Truth in Lending Act (TILA). Specifically, the bill states that “neither escrow charges for insurance nor affiliated title charges shall be considered ‘points and fees’ for purposes of determining whether a mortgage is a ‘high-cost mortgage.’” On February 12, the bill was received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.

    Federal Issues Federal Legislation U.S. House Usury Lending RESPA TILA Mortgages Disclosures Madden

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