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District Court Upholds CFPB CID Targeting the Marketing of “Contracts for Deed”
On February 17, a U.S. District Court held that home sellers who use contracts for deed are required to comply with CFPB Civil Investigative Demands (CIDs) asking for information about possible illegalities in selling or collecting residential property purchase loans. CFPB v Harbour Portfolio Advisors, LLC et al., [Order] No. 16-14183 (E.D. Mich. Feb. 17, 2017). Specifically, the Court found that the Bureau is not “plainly lacking” in jurisdiction to look into contracts for deed, and the CIDs were not unduly burdensome.
Back in November, the CFPB had petitioned the court to enforce CIDs served on Respondents. At issue before the Court was whether the Bureau’s investigative authority extends to the selling, marketing, and servicing of a financial product called an Agreement for Deed (“AFD”), otherwise known as a “contract for deed” or a “land installment contract.” Respondents thereafter petitioned the Bureau to set aside the CIDs, offering three reasons why the CIDs should not be enforced: (i) the CFPB exceeded its authority in issuing the CIDs; (ii) the companies had not been given fair notice that contracts for deed could be covered by federal financial consumer protection laws; and (iii) the CIDs were unduly burdensome and should be modified.
Each of these three arguments was rejected by the court: (i) as to the Bureau’s authority, the court found that objection premature, noting that the Bureau need only establish a “plausible reason” to believe the companies might have information related to violations of the federal financial consumer protection laws; (ii) the court similarly held the “fair notice” argument to be premature at the investigation stage; and (iii) in rejecting Respondent’s arguments that the burden of compliance was excessive, the court noted that the CFPB was entitled to documents that “will help the Bureau develop a complete understanding of Respondents’ practices and operations” and that Respondents’ assertions about the cost of compliance and the burden on its few employees were not corroborated.
Special Alert: D.C. Circuit Grants Petition For Rehearing in PHH v. CFPB; Vacates Judgment Based on Bureau’s Unconstitutionality
Buckley Sandler Special Alert
On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation. Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act. As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Oral argument is scheduled for May 24, 2017.
As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations. However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution. The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.
Click here to read full special alert
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If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
Court Rules that CFPB Must Prove Deceptive Practices at Trial in Mortgage Relief Case
On February 6, the U.S. District Court for the Northern District of California denied the CFPB’s motion for summary judgment and held that its “intrinsically factual” deception claims would have to be decided at trial. See CFPB v. Nationwide Biweekly, et. al., [Order Denying Motions for Summary J.] No. 15-cv-2106 (N.D. Cal. Feb. 6, 2017). The Bureau alleges that the defendant company—which helps homeowners restructure their mortgage payments to help them pay down their mortgages faster—misrepresented the savings that consumers would gain through its services. Lawyers for the defendants rejected those claims, saying in a court filing last month that consumers were told multiple times about the setup fee and that promises of interest savings are true. Ultimately, Judge Richard Seeborg sided with defendants, disagreeing with the CFPB’s assertion that it had presented “uncontroverted evidence” of deception and that “no reasonable fact finder” could find in defendants’ favor.
CFPB and New York Attorney General File Lawsuit Against Company that Lured 9/11 Heroes Out of Millions of Dollars
On February 7, the CFPB announced that it has—in partnership with the New York Attorney General (NYAG)—filed a complaint in federal district court against a finance company and two affiliates that offer lump-sum advances to consumers entitled to periodic payouts from victim compensation funds or lawsuit settlements. A press release from the NYAG’s Office can be accessed here.
The Bureau and the NYAG claim, among other things, that the defendants misled World Trade Center attack first responders and professional football players in selling expensive advances on benefits to which they were entitled and mischaracterized extensions of credit as assignments of future payment rights, thereby misleading their victims into repaying far more than they received. Specifically, according to the allegations in the complaint, the New Jersey-based companies: (i) used “confusing contracts” to prevent the individuals from understanding the terms and costs of the transactions; (ii) lied to the individuals by telling them the companies could secure their payouts more quickly; (iii) misrepresented how quickly they would receive payments from the companies, and (iv) collected interest at an illegal rate.
These actions, the two regulators argue, constitute violations of the Consumer Financial Protection Act ban on unfair, deceptive, or abusive practices, New York usury laws, and other state consumer financial protection laws. The lawsuit seeks to end the company’s illegal practices, obtain relief for the victims, and impose penalties.
Intervention by Lawmakers in PHH Case Denied by D.C. Circuit
On February 2, a federal appeals court in Washington, D.C., in a brief order, denied a motion by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB to intervene in PHH Corp. v. CFPB. The order also denied similar motions submitted by 16 state attorneys general and a coalition of interest groups. As previously covered on InfoBytes, the court is still considering a petition by the Bureau for rehearing an October ruling that said CFPB Director Richard Cordray may be removed by the president without cause.
CFPB Reaches Settlement with Arizona-Based Title Lender
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.
CFPB and Attorney General of Virginia Take Action Against Pawnbroker for TILA Disclosures
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.
CFPB Fines Prepaid Debit Card Company and Payment Processor $13 Million for Preventable Service Breakdown, Claims Consumers Denied Access to Their Own Money
On February 1, the CFPB announced that it had entered a consent order against two companies—a prepaid card company and its payment processor—for failing to conduct adequate testing and preparation before and during a switch to a new payment processing platform in 2015. In addition, the Bureau cited both companies for improper administration of accounts after the switch. The allegations arise out of an approximate three week breakdown in services in October 2015 which, among other things, denied cardholders access to their accounts, delayed the processing of deposits and payments, and also, in some instances, erroneously double posted deposits which falsely inflated account holders’ balances. The consent order also notes that the prepaid card company failed to provide adequate customer service to consumers impacted by the breakdown. The CFPB stated that it received roughly 830 consumer complaints in the weeks following the switch. Based on these and other allegations, the Bureau ordered the two companies to prepare a plan to prevent future service disruptions and pay an estimated $10 million in restitution to harmed consumers as well as a $3 million civil penalty.
CFPB Fines Mortgage Lender $3.5 Million for Paying Illegal Kickbacks
On January 31, the CFPB issued consent orders against four entities—a mortgage lender, two real estate brokers, and a mortgage servicer—alleged to have participated in an illegal mortgage business referral scheme. According to the first order (2017-CFPB-0006), the mortgage lender violated RESPA when it, among other things, (i) paid for referrals pursuant to various agreements with real estate brokers and other counterparties; (ii) encouraged brokers to require consumers to “prequalify” with the lender; and (iii) split fees with a mortgage servicer to obtain consumer referrals. Based on these and other allegations, the CFPB ordered the lender to pay a $3.5 million civil money penalty. In addition, the Bureau issued consent orders against the two real estate brokers and the mortgage servicer that allegedly participated in the kickback scheme (see 2017-CFPB-0008, 2017-CFPB-0009, and 2017-CFPB-0007). Notably, the Bureau alleges that the servicer also violated FCRA by ordering “trigger leads” from credit bureaus so that it could market the lender to consumers. The real estate brokers and servicer were ordered to pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties. Read the special alert issued February 1 on InfoBytes.
Texas Appeals Court Holds Email From: Line to be a Valid Electronic Signature Under State's Uniform Electronic Transactions Act (UETA)
On December 22, in an unpublished decision, a Texas Court of Appeals held that an email exchange constituted an executed contract between two individuals under the state’s enactment of the Uniform Electronic Transactions Act (UETA). Khoury v. Tomlinson, No. 01-16-00006-CV (Tex. App. Dec. 22, 2016). The dispute involved an email sent from Appellant to Appellee, which outlined terms of an agreement to repay investment funds. Appellee responded to the email, stating "We are in agreement," but did not type his name or include a signature block at the end of his message. A jury found that an electronic contract was formed by this exchange, but the trial court granted the Appellee’s motion for judgment notwithstanding the verdict on the basis that the electronic contract violated the state statute of frauds. On appeal, the Appellant invoked the UETA, arguing that the email satisfied the writing requirement of the statute of frauds because it was an electronic record and that the header, which included a “From:” field bearing the Appellee’s name, constituted Appellee’s signature because that field serves the same “authenticating function” as a signature block. The appellate court agreed that the email was an electronic record sufficient to satisfy the writing requirement in the statute of frauds.