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New Jersey says realty company misled consumers about homeowner program
On June 6, the New Jersey attorney general and the New Jersey Division of Consumer Affairs filed an action against a realty company and its principals (collectively, “defendants”) for allegedly violating the state’s Consumer Fraud Act by making deceptive misrepresentations about its “Homeowner Benefit Program” (HBP). Concurrently, the New Jersey Real Estate Commission in the Department of Banking and Insurance filed an order to show cause alleging similar misconduct and taking action against the real estate licenses belonging to the company and certain related individuals.
According to the complaint, the defendants’ HBP was marketed to consumers as a low-risk opportunity to obtain quick, upfront cash between $300 and $5000 in exchange for giving defendants the right to act as their real estate agents if they sold their homes in the future. The HBP was not marketed as a loan and consumers were told they were not obligated to repay the defendants or to ever sell their home in the future. However, the press release alleged that the HBP functions as a high-interest mortgage loan giving the defendants the right to list the property for 40 years, and that the loan survives the homeowner’s death and levies a high early termination fee against the homeowners. The complaint further charged the defendants with failing to disclose the true nature of the HBP and failing to present the terms upfront. Moreover, in order to sell the HBP, the defendants allegedly placed unsolicited telephone calls to consumers despite not being licensed as a telemarketer in New Jersey. The complaint seeks an order requiring defendants to discharge all liens against homeowners, pay restitution and disgorgement, and pay civil penalties and attorneys’ fees and costs.
The order to show cause alleges violations of the state’s Real Estate License Act and requires defendants to show why their real estate licenses should not be suspended or revoked, as well as why fines or other sanctions, such as restitution, should not be imposed. Defendants have agreed to cease any attempt to engage New Jersey consumers in an HBP agreement pending resolution of the order to show cause.
District Court puts hold on CFPB’s $2.7 billion request in telemarketer case
On June 7, the U.S District Court for the District of Utah denied the CFPB’s motion for an award of monetary and injunctive relief, assessment of civil money penalties, and final judgment in an action taken against a group of Utah-based credit repair telemarketers and their affiliates (collectively, “defendants”). As previously covered by InfoBytes, the CFPB sued the defendants in 2019 for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging consumers a fee for credit repair services when they signed up for the services through telemarketing, and then monthly thereafter. Certain defendants also allegedly made false and misleading claims guaranteeing, or ensuring the high-likelihood, that loans or rent-to-own housing offers would be available through affiliates after signing up for credit repair services when the products were not available. In March, the court granted the Bureau’s motion for partial summary judgment, ruling in favor of the agency on claims that the defendants violated the TSR’s prohibitions against charging upfront fees for credit repair services.
According to the June 7 order, the Bureau asked the court to award more than $2.7 billion in monetary relief, justifying the amount as “either a ‘refund of moneys’ or, alternatively, as legal (as opposed to equitable) ‘restitution.’” The Bureau also requested civil money penalties of $35.2 million and $17.6 million against different defendants, as well as extensive injunctive relief. Defendants argued that the maximum civil money penalty should fall within the range of $1 and $17.6 million as their alleged conduct “did not merit the maximum Tier 1 penalty,” and that, in any event, “the Tier 1 daily limit in the statute should apply to the aggregate penalty amount imposed on all [d]efendants collectively.” Defendants also asked the court to deny the requested injunction or clarify its requirements.
In denying the Bureau’s motion, the court wrote that “outstanding issues of fact” preclude it from entering the agency’s requested relief at this time. “Given the existence of these factual disputes, the court finds it will be most efficient to consolidate further discussions of relief with final pretrial proceedings,” the court said, denying the agency’s request without prejudice.
District Court: Plaintiff failed to prove damages in RESPA suit
The U.S. District Court for the Northern District of Texas recently granted summary judgment in favor of a defendant mortgage servicer related to alleged RESPA violations. Plaintiff obtained a refinanced loan that was serviced by the defendant. Plaintiff later sued the defendant after becoming frustrated by receiving repeated calls suggesting he refinance the loan. Once litigation commenced, the defendant began sending the monthly mortgage statements to plaintiff’s counsel. In 2021, plaintiff sent a request for information to the defendant seeking a range of monthly billing statements, which the defendant allegedly only partially provided. Plaintiff’s attorney further claimed to have received an escrow review statement from the defendant referencing an escrow surplus check that the plaintiff also claimed not to have received. The plaintiff claimed violation of RESPA by pointing to the defendant’s alleged failure to adequately respond to his requests for statements or to provide the surplus check. The defendant moved for summary judgment, arguing that neither the facts nor the law supported the plaintiff’s claims.
The plaintiff eventually conceded that there is no private right of action under RESPA’s escrow payment regulation and withdrew the claim. The court also took issue with his claim that the defendant failed to adequately respond to his request for information. Even if the defendant failed to adequately respond, the plaintiff could not plead or prove actual damages, the court said. “Neither party disputes that RESPA requires plaintiffs to plead and prove actual damages from an alleged violation,” the court wrote. “Instead, they focus their arguments on the sufficiency of the alleged damages. [Defendant] alleges that [plaintiff] provides no evidence to demonstrate how he suffered damages from the fact that it provided only three of the fourteen requested monthly statements.” Plaintiff tried to argue he was owed monetary damages due to being deprived of the escrow surplus funds and by being unfairly assessed convenience fees when making payments through the defendant’s online portal. He further claimed he suffered medical and mental anguish. However, the court concluded that evidence presented by the defendant refuted these claims (the convenience fee claim, the court said, could not be connected to the RESPA claim) and said plaintiff also failed to support his claims of medical and mental anguish. Further, plaintiff failed to present evidence supporting his claim for statutory damages, the court said, finding no genuine dispute of material fact in the record.
CFPB highlights borrower risk as suspension on student loans nears end
On June 7, the CFPB released updated figures on risks facing student loan borrowers when payments paused during the pandemic are set to resume 60 days after June 30. Examining a deidentified sample of credit records, the Bureau studied roughly 32 million borrowers whose federal student loans will soon start accruing interest again. Findings found that:
- “More than one-in-thirteen student loan borrowers are currently behind on their other payment obligations. These delinquencies are higher than they were before the pandemic, despite a small seasonal decrease in the most recent data.”
- “About one-in-five student loan borrowers have risk factors that suggest they could struggle when scheduled payments resume.”
- “Median scheduled payments on other debt obligations have increased by 24 percent for student loan borrowers likely returning to repayment. In percentage terms, these increases are especially large for younger borrowers (252 percent, or $65 to $229).”
- “More than four-in-ten borrowers in [the] sample will return to repayment with a new student loan servicer.”
Bureau researchers found that the ebb and flow of the percent of delinquencies can be linked to the pause on student loan payments, pandemic stimulus payments, and other policy interventions. Attributing the slight decrease this March to an expected seasonal trend, the Bureau said the percentage is again rising as pandemic relief is expiring. This increase in delinquencies is not only specific to student loan borrowers, but also to all non-student loan borrowers, especially in the age range of 30-49, the agency reported. The research further found that “while borrowers in moderate- or higher-income Census tracts are less likely overall to have a non-student-loan delinquency than borrowers in lower-income Census tracts, these delinquencies grew faster for borrowers in higher-income areas over the last several months.” Without enrolling in income-driven repayment plans, the Bureau said it expects student loan borrowers with large balances relative to their income to have a higher risk of struggling to resume their payments.
The Bureau also explained that student loan borrowers’ non-student loan debts (which have increased by at least 10 percent) could also complicate the transition to repayment for millions of borrowers. Another concern flagged by the Bureau is that more than 44 percent of student loan borrowers will have to work with a new servicer as many servicers exited their contracts with the Department of Education over the past three years. The Bureau noted it plans to continue to monitor whether these risks materialize into financial distress.
Minnesota further regulates payday loans
On May 24, Minnesota enacted SF 2744 (the “Act”) to amend several sections of the state statutes relating to payday loans. Among other things, Section 47.603 has been added to create barriers for payday lenders charging annual interest rates of more than 36 percent and to require payday lenders to assess the borrower’s ability to repay a payday loan or payday advance.
The provisions specify an ability to repay analysis, which requires a payday lender to first determine whether a borrower has the ability to make the loan payment at the end of the loan period. The Act further explains that a “payday lender’s ability to repay determination is reasonable if, based on the calculated debt-to-income ratio for the loan period, the borrower can make payments for all major financial obligations, make all payments under the loan, and meet basic living expenses during the period ending 30 days after repayment of the loan.” Additionally, amendments replace past provisions for charges in lieu of interest, with an umbrella policy for any consumer small loan with an annual percentage rate of up to 50 percent that bans lenders from adding any additional charges or payments in connection with the loan.
The amendments will apply to “consumer small loans” and “consumer short-term loans,” as defined by the Act, originated on or after January 1, 2024.
Agencies propose ROV guidance
On June 8, the CFPB joined the Federal Reserve Board, FDIC, NCUA, and the OCC to request comments on proposed interagency guidance relating to reconsiderations of value (ROV) for residential real estate valuations. The proposed guidance advises financial institutions on policies that would afford consumers an opportunity to introduce evidence that was not previously considered in the original appraisal. The proposal references the occurrence of “deficiencies” in real estate valuations, which can be due to errors or omissions, valuation methods, assumptions, or other factors. According to the proposed guidance, these kind of valuation deficiencies can “prevent individuals, families, and neighborhoods from building wealth through homeownership by potentially preventing homeowners from accessing accumulated equity, preventing prospective buyers from purchasing homes, making it harder for homeowners to sell or refinance their homes, and increasing the risk of default.” Also noted is the risk non-credible valuations pose to financial institutions, which may lead to loan losses, violations of law, fines, civil money penalties, damages, and civil litigation.
The proposed guidance (i) provides direction on how ROVs overlap with appraisal independence requirements and compliance with relative laws and regulations; (ii) identifies how financial institutions can implement and improve existing ROV policies while remaining compliant with regulations, preserving appraiser independence, and being responsive to consumers; (iii) explains how deficiencies can pose risk to financial institutions and describes how ROV policies should be factored into risk management functions; and (iv) provides examples of ROV policies, procedures, control systems, and complaint processes to address deficient valuations.
Comments on the proposed guidance are due within 60 days of publication in the Federal Register.
FTC seeks to work with states on combatting fraud
On June 7, the FTC announced it is soliciting public comments on how the Commission can work more effectively with state attorneys general to prevent and inform consumers about potential fraud. The FTC said in its announcement that the agency and the AGs share a common mission to protect the public from “deceptive or unfair business practices and from unfair methods of competition through law enforcement, advocacy, research, and education.” The request for public comments comes as a result of the FTC Collaboration Act of 2021 (the “Act”), which requires the Commission to not only solicit public comments, but also to consult directly with interested stakeholders. Signed into law last year, the Act directs the FTC to conduct a study on how to streamline and leverage the relationship between the Commission and the AGs to better protect Americans from fraud and hold those committing malicious acts accountable. The FTC requests comments specifically regarding: (i) the roles and responsibilities of the Commission and AGs that best advance collaboration and consumer protection; (ii) how resources should be dedicated to further such collaboration and consumer protection; and (iii) the accountability mechanisms that should be implemented to promote collaboration and consumer protection between the FTC and AGs.
The completed report will be submitted to the House Committee on Energy and Commerce and the Senate Committee on Commerce, Science, and Transportation. Comments are due 60 days after publication in the Federal Register.
CFPB revises supervision and examination manual
On June 5, the CFPB revised its Supervision and Examinations Manual to incorporate minor changes for larger participants under “Module 7 - Consumer Alerts, Identity Theft, and
Human Trafficking Provisions.” The updates specifically included FCRA and Regulation V requirements that prohibit credit reporting agencies (CRAs) from including information in consumer reporting in cases of human trafficking. Notably, the final rule regarding credit reporting on human trafficking victims was issued in 2022 (previously covered by InfoBytes here). The CFPB also stated that all CRAs must “establish and maintain written policies and procedures reasonably designed to ensure and monitor the compliance of the consumer reporting agency and its employees with the requirements of 12 CFR 1022.142.”
CFPB highlights problems with chatbots in banking
On June 6, the CFPB released an Issue Spotlight exploring the adoption and use of chatbots by financial institutions. According to the report, financial institutions implement chatbots to reduce the costs of customer service, which is sometimes poorly deployed and can lead to customer frustration, reduced trust, and even violations of the law.
The report found that the use of chatbots raised several risks including: (i) noncompliance with federal consumer financial protection laws; (ii) diminished customer service and trust; and (iii) harm to customers. The Bureau said it has received several complaints from customers who claimed they cannot get the answers they need from such chatbots. The agency reported that about 37 percent of the U.S. population has interacted with chatbots, which is a figure projected to grow, and cautioned that chatbots should not be the primary source of customer service delivery when it is reasonably clear that a chatbot is unable to meet customer needs.
The Bureau said it will continue to monitor the market and encourages people who are having trouble getting the answers they need due to lack of human interaction to submit their complaints to the agency. It also encourages financial institutions to ensure new technology is increasing the quality of customer care.
District Court preliminarily approves $2.7 million FCRA settlement
On June 1, the U.S. District Court for the Eastern District of California preliminarily approved a class action settlement, which would require a corporate defendant to pay $2.7 million to resolve allegations that it provided false information on credit reports to auto dealers. The defendant sells credit reports to auto dealers to help dealers manage their regulatory compliance obligations, the order explained, noting that one of these obligations prohibits dealers from engaging in business with anyone designated on the U.S. Treasury Department’s Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals (SDN) list. The SDN list is comprised of persons and entities owned or controlled by (or acting for or on behalf of) a targeted company, or non-country specific persons, who are prohibited from conducting business in the U.S. The defendant would flag a consumer as an “OFAC Hit” if it matched a name on the SDN list.
The order explained that when using a “similar name” algorithm script to run the consumer’s name against the SDN list to check for a match, the defendant only ran first and last names and did not input other available information such as birth dates and addresses. The lead plaintiff filed a putative class action pleading claims under the FCRA and California’s Consumer Credit Reporting Agencies Act, alleging his name inaccurately came up as an OFAC hit on a credit report sold to an auto dealer. In turn, the plaintiff was denied credit and suffered emotionally, later learning that the defendant incorrectly matched him with an SDN. According to class members, the defendant failed to follow reasonable procedures to assure maximum possible accuracy when matching consumer information and failed to provide, upon request, all information listed in a consumer’s file. Moreover, the lead plaintiff claimed the defendant failed to investigate the disputed OFAC-related information sold to the dealer. The defendant moved for summary judgment on the premise that it was not acting as a consumer reporting agency and that OFAC check documents were not consumer reports, but the court denied the motion and later certified the class. If finalized, the settlement would provide $1,000 to each of the class members, attorneys fees and costs, and a service award to the lead plaintiff.