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Department of Education Withdraws Student Loan Guidance; Bipartisan Legislation Introduced to Require APR Disclosure on Federal Student Loans
On March 16, the U.S. Department of Education (Department) Acting Assistant Secretary Lynn B. Mahaffie notified relevant agencies that the Department is withdrawing statements of policy and guidance regarding repayment agreements and liability for collection costs on Federal Family Education Loan Program (FFELP) loans as previously stated in its July 10, 2015 Dear Colleague Letter (DCL) GEN 15-14. GEN 15-14 barred a "guaranty agency from charging collection costs to a defaulted borrower who (i) responds within 60 days to the initial notice sent by the guaranty agency after it pays a default claim and acquires the loan from the lender; (ii) enters into a repayment agreement, including a rehabilitation agreement; and (iii) honors that agreement.” The Department emphasized that the "position set forth in the DCL would have benefited from public input on the issues discussed in the DCL,” and as a result, the Department has withdrawn the DCL and will not require compliance without the opportunity for the public to provide comments.
Earlier in the month, Representatives Randy Hultgren (R-IL), Luke Messer (R-IN), and David Scott (D-GA) reintroduced the Transparency in Student Lending Act (H.R. 1283)—bipartisan legislation requiring the disclosure of the annual percentage rate on federal loans issued by the Department of Education. In 2008 the Truth in Lending Act disclosure requirements were applied to private loans, but not to federal student loans—an omission that does a “gross disservice” to borrowers according to Hultgren. “The Department of Education is the largest consumer lender in the United States, and should provide the most transparent and helpful information to borrowers. Helping borrowers understand their debt obligations is an important first step to ensuring they are able to make their payments, and also helps prevent taxpayers from being on the hook for delinquent borrowers,” noted Hultgren.
9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process
In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans.
In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents. The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents. 673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.
On March 14, the FTC announced that it reached a settlement with a Los-Angeles-based auto dealership group over charges that the group engaged in deceptive and unfair sales and financing practices, deceptive advertising, and deceptive online reviews. The settlement, in the form of a stipulated final order, requires that the auto group pay more than $3.6 million in consumer remediation and is pending approval by the U.S. District Court for the Central District of California. The complaint, which was filed in September of last year, also alleged the defendants participated in deceptive and unfair practices related to add-on products that consumers did not authorize. Furthermore, the FTC claimed the defendants violated TILA and Regulation Z, as well as the Consumer Leasing Act and Regulation M, for “failing to clearly disclose required credit information and lease information in their advertising.” The proposed settlement order prohibits “the defendants from making misrepresentations relating to their advertising, add-on products, financing, and endorsements or testimonials,” and also bars “the defendants from engaging in other unlawful conduct when a sale is cancelled.”
On March 13, the CFPB issued a consent order and stipulation in an enforcement action against the fifth of five Arizona-based title lenders under investigation for advertising periodic interest rates without including corresponding annual percentage rates. As previously covered in Infobytes in September and February, this marks the conclusion of the investigation initiated by the Bureau last year against five title lenders for alleged violations of TILA, Regulation Z, and the Consumer Financial Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices. The terms of the consent order include a $40,000 civil money penalty, an agreement that the lender will refrain from further violations of TILA, and a requirement that the lender submit a comprehensive plan to ensure compliance with all applicable federal consumer financial laws and the terms of the consent order.
On February 2, the CFPB announced a consent order and stipulation in an enforcement action against one of five Arizona-based title lenders under investigation for violations of TILA (see September 23 InfoBytes post). The terms of the February consent order and stipulation include a $10,000 civil money penalty as well as a mandatory requirement that the lender refrain from further violations of TILA and create a comprehensive compliance plan to ensure that its advertising practices for its title lending business conform to all applicable federal consumer financial laws and the terms of the consent order. On November 1 and December 20, 2016, the CFPB posted consent orders and stipulations against three of the other five title lenders (2016-CFPB-0018, 2016-CFPB-0019, 2016-CFPB-0021). The Bureau is still negotiating an agreement with the fifth title lender.
On February 2, the CFPB and the Attorney General of Virginia filed a lawsuit and proposed stipulated final judgment against a Virginia pawnshop for deceiving consumers about the actual annual costs of its loans. This complaint is one of many similar lawsuits filed recently against several Virginia pawnbrokers (see November 11 and December 23 Infobytes posts). The complaint alleges violations of TILA, the Dodd-Frank Act, Virginia’s pawnbroker statutes, and the Virginia Consumer Protection Act. The proposed stipulated final judgment orders the company to pay over $56,000 in restitution, forfeit over $17,000 in ill-gotten gains, and pay a $5,000 civil penalty.
On December 23, the CFPB announced that it is amending the official commentary interpreting Regulation Z (Truth in Lending) to reflect a change in the asset size exemption thresholds required to establish an escrow account for higher-priced mortgages under Reg. Z. Under the amended commentary, the exemption threshold is adjusted to increase to $2.069 billion from $2.052 billion.
On December 19, the CFPB announced it had filed enforcement actions (3:16cv987, 3:16cv988, 1:16cv1566, 1: 16cv1567) in federal district court against four Virginia pawnbrokers for misleading customers through deceptively low annual percentage rates that intentionally omit or hide certain fees and charges. In each Complaint, the Bureau alleges both TILA violations and unfair, deceptive, or abusive acts or practices under Dodd-Frank and the CPA. The complaints seek injunctive relief ordering the pawnbrokers to stop the allegedly illegal practices, restitution for consumers, and statutory penalties.
In a letter sent to CFPB Director Richard Cordray on December 1, a group of Republican members of Congress expressed concern about the Bureau’s proposal regarding payday, vehicle title, and certain high-cost installment loans. The letter observes that CFPB’s proposal “attempts to further regulate an industry that is already highly regulated by nearly a dozen federal laws including the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Electronic Fund Transfer Act.” Specifically, the letter contends that the CFPB’s framework will effectively preempt existing statutory and regulatory frameworks and/or eliminate regulated small dollar credit products from the market, thereby leaving consumers without access to credit or forcing them to seek “riskier, illegal” forms of credit.
On November 3, the CFPB filed a lawsuit in federal district court against a Virginia pawnbroker for deceiving consumers about the actual annual cost of its loans. In its Complaint, the CFPB alleges both TILA violations and unfair, deceptive, or abusive acts or practices under Dodd-Frank and the CPA. The complaint seeks monetary relief, injunctive relief, and penalties. The CFPB coordinated its investigation with the Virginia Attorney General’s office – which filed its own lawsuit against the same pawnbrokers back in July 2015 for violations of the Virginia Consumer Protection Act.