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FHA reduces mortgage insurance premiums to improve home affordability
On February 22, FHA announced a 30 basis point reduction in the annual premium charged to mortgage borrowers, resulting in mortgage insurance premiums of 0.55 percent for most borrowers seeking FHA-insured mortgages (down from 0.85 percent). (See also Mortgagee Letter 2023-05.) The reduction will apply to nearly all FHA-insured Single Family Title II forward mortgages, and is applicable to all eligible property types including single family homes, condominiums, and manufactured homes, all eligible loan-to-value ratios, and all eligible base loan amounts. According to the announcement, the reduction is intended to build on steps taken by the Biden administration to make homeownership more affordable and accessible, particularly for households of color, and could save an estimated 850,000 borrowers an average of $800 annually. As previously covered by InfoBytes, last September HUD modified FHA’s underwriting policies to allow lenders to consider a first-time homebuyer’s positive rental payment history as an additional factor in determining eligibility for an FHA-insured mortgage, and in March, the Property Appraisal and Valuation Equity Task Force outlined steps for addressing alleged racial bias in home appraisals (covered by InfoBytes here). Additional actions taken by HUD to improve homeownership accessibility can be found here.
VA reduces funding fee for certain loans
On February 14, the Department of Veterans Affairs announced a funding fee charge update for loans closed on or after April 7, 2023. According to Circular 26-23-06, funding fees are charged on VA transactions involving a home loan where a borrower does not qualify for a fee waiver. A reduced funding fee also applies to borrowers purchasing or constructing a home with a five or 10 percent down payment. The VA explained that lenders are to continue charging non-exempt veterans the current funding fee percentage for loans closed prior to April 7 (fee rates are listed here). For loans closed on or after April 7, lenders must charge the new funding fee percentage (fee rates are listed here).
District Court says undated collection letter is misleading
On February 9, the U.S. District Court for the Southern District of Florida partially granted a defendant debt collector’s motion to dismiss an action alleging an undated collection letter violated various provisions of the FDCPA. Plaintiff received a collection letter from the defendant providing information on the amount of outstanding debt and instructions on how to dispute the debt, as well as a timeframe for doing so. However, the letter sent to the plaintiff was undated, and the plaintiff asserted that it was impossible for him to determine what “today” meant when the letter said “‘[b]etween December 31, 2021 and today[,]’” or what “now” referred to in the context of “[t]otal amount of the debt now.” He argued that by withholding this necessary information, the letter appeared to be illegitimate and misleading, and ultimately caused him to spend time and money to mitigate the risk of future financial harm. The defendant moved to dismiss for failure to state a claim, maintaining that the letter “fully and accurately stated the amount of the debt and otherwise complied with all requirements of the [statute].” The defendant further argued that the letter “conforms exactly to” the debt collection model form letter provided by the CFPB, and insisted that, because it complied with 12 C.F.R. § 1006.34(d)(2), it fell within the safe harbor provided by Bureau regulations to debt collectors that use the model form letter. The defendant contended that, even if it did not qualify for the safe harbor provision, it is not a violation of the FDCPA for a debt collection letter to be undated. The plaintiff asked the court to ignore the Bureau’s safe harbor provision and find that the undated letter is sufficient to state a plausible FDCPA claims.
In dismissing one of plaintiff’s claims, the court agreed with the defendant that the plaintiff failed to provide any factual or plausible allegations demonstrating “harass[ment], oppress[ion], or abuse” by the defendant (a requirement for alleging a violation of 15 U.S.C. section 1692d). “An undated letter, with little else, is not ‘the type of coercion and delving into the personal lives of debtors that [section] 1692d in particular[] was designed to address,” the court wrote.
However, the court determined that the plaintiff’s other three claims survive the motion to dismiss. First, the court held that the defendant’s reliance on the model form letter “overstates both the meaning and scope of the regulatory safe harbor provided by the CFPB.” Specifically, the plaintiff did not allege that the defendant violated any CFPB regulations—he alleged violations of the FDCPA, and the court explained that nowhere does the Bureau state that using the model form letter “suffices as compliance with the corresponding statutory requirements of [FDCPA] section 1692g.” Moreover, while use of the model form might provide a safe harbor from some of the statute’s requirements, “a safe harbor for the form of provided information is different from a safe harbor for the substance of that information,” the court said, adding that using the model form letter alone does not bar plaintiff’s claims. Additionally, the court determined that under the “least-sophisticated consumer” standard, the plaintiff alleged plausible claims for relief based on the omission of the date in the letter. Among other things, the undated letter could be interpreted as not stating the full amount of the debt, nor does the letter provide a means for plaintiff to assess how the debt might increase in the future if he did not make a prompt payment. With respect to whether the defendant used “unfair or unconscionable means to collect” the debt, the court determined that the undated letter’s misleading nature as to the full amount of the debt might “be ‘unfair or unconscionable’ to the least-sophisticated consumer.”
Illinois announces new consumer protections for digital assets, proposes new money transmitter licensing provisions
On February 21, the Illinois Department of Financial and Professional Regulation (IDFPR) announced several legislative initiatives to establish consumer protections for cryptocurrencies and other digital assets and provide regulatory oversight of the broader digital asset marketplace. The Fintech-Digital Asset Bill (see HB 3479) would create the Uniform Money Transmission Modernization Act and provide for the regulation of digital asset businesses and modernize regulations for money transmission in the state. Among other things, the Fintech-Digital Asset Bill would require digital asset exchanges and other digital asset businesses to obtain a license from IDFPR to operate in the state. The bill also establishes various requirements for businesses, including investment disclosures, customer asset safeguards, and customer service standards. Companies would also be required to implement cybersecurity measures, as well as procedures for addressing business continuity, fraud, and money laundering. Notably, the Fintech-Digital Asset Bill replaces and supersedes the Transmitters of Money Act (see 205 ILCS 657) with the Money Transmission Modernization Act, in order to harmonize the licensing, regulation, and supervision of money transmitters operating across state lines. Provisions also amend the Corporate Fiduciary Act to allow for the creation of trust companies for the special purpose of acting as a fiduciary to safeguard customers’ digital assets, the announcement noted.
The Consumer Financial Protection Bill (see HB 3483) would grant the IDFPR authority to enforce the Fintech-Digital Asset Bill and strengthen the department’s authority and resources for enforcing existing consumer financial protections. Modeled after the Dodd-Frank Act, the Consumer Financial Protection Bill empowers the IDFPR with the ability to target unfair, deceptive, and abusive acts and practices by unlicensed financial services providers. The bill creates the Consumer Financial Protection Law and the Financial Protection Fund, and establishes provisions related to supervision, registration requirements, consumer protection, cybersecurity, anti-fraud and anti-money laundering, enforcement, procedures, and rulemaking. The Consumer Financial Protection Bill also includes provisions concerning court orders, penalty of perjury, character and fitness of licensees, and consent orders and settlement agreements, and makes amendments to various application, license, and examination fees. The bill does so by amending the Collection Agency Act, Currency Exchange Act, Sales Finance Agency Act, Debt Management Service Act, Consumer Installment Loan Act, and Debt Settlement Consumer Protection Act.
FTC, DOJ sue telemarketers of fake debt relief services
On February 16, the DOJ filed a complaint on behalf of the FTC against several corporate and individual defendants for alleged violations of the FTC Act and the Telemarketing Sales Rule (TSR) in connection with debt relief telemarketing campaigns that delivered millions of unwanted robocalls to consumers. (See also FTC press release here.) According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants are interconnected platform providers, lead generators, telemarketers, and debt relief service sellers. Alleged violations include: (i) making misrepresentations about their debt relief services; (ii) initiating telemarketing calls to numbers on the FTC’s Do Not Call Registry, as well as calls in which telemarketers failed to disclose the identity of the seller and services being offered; (iii) initiating illegal robocalls without first obtaining consent; (iv) failing to make oral disclosures required by the TSR, including clearly and truthfully identifying the seller of the debt relief services; (v) misrepresenting material aspects of their debt relief services; and (vi) requesting and receiving payments from customers before renegotiating or otherwise altering the terms of those customers’ debts. The complaint seeks permanent injunctive relief, civil penalties, and monetary damages. Two of the defendants (a debt relief lead generator and its owner) have agreed to a stipulated order that, if approved, would prohibit them from further violations and impose a monetary judgment of $3.38 million, partially suspended to $7,500 to go towards consumer redress due to their inability to pay.
DFPI launches crypto scam tracker
On February 16, the California Department of Financial Protection and Innovation (DFPI) launched a database to help consumers in the state spot and avoid crypto scams. The Crypto Scam Tracker compiles details about apparent crypto scams identified through a review of public complaints submitted to the DFPI, and is searchable by company name, scam type, or keywords. “Through the new Crypto Scam Tracker, combined with rigorous enforcement efforts, the DFPI is committed to shining a light on these ruthless predators and protecting consumers and investors,” DFPI Commissioner Clothilde Hewlett said in the announcement.
District Court allows FTC suit against owners of credit repair operation to proceed
On February 13, the U.S. District Court for the Eastern District of Michigan denied a motion to dismiss filed by certain defendants in a credit repair scheme. As previously covered by InfoBytes, last May the FTC sued a credit repair operation that allegedly targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. At the time, the court granted a temporary restraining order against the operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. The temporary restraining order was eventually vacated, and the defendants at issue (two individuals and two companies that allegedly marketed credit repair services to consumers, charged consumers prohibited advance fees in order to use their services without providing required disclosures, and promoted an illegal pyramid scheme) moved to dismiss themselves from the case and to preclude the FTC from obtaining permanent injunctive and monetary relief.
In denying the defendants’ motion to dismiss, the court held, among other things, that “controlling shareholders of closely-held corporations are presumed to have the authority to control corporate acts.” The court pointed to the FTC’s allegations that the individual defendants at issue were owners, officers, directors, or managers, were authorized signatories on bank accounts, and had “formulated, directed, controlled, had the authority to control, or participated in the acts and practices set forth in the complaint.” The court further held that the FTC’s allegations raised a plausible inference that the individual defendants have the authority to control the businesses and demonstrated that they possessed, “at the most basic level, ‘an awareness of a high probability of deceptiveness and intentionally avoided learning of the truth.’”
The court also disagreed with the defendants’ argument that the permanent injunction is not applicable to them because they have since resigned their controlling positions of the related businesses, finding that “[t]his development, if true, does not insulate them from a permanent injunction.” The court found that “the complaint contains plausible allegations of present and ongoing deceptive practices that would authorize the [c]ourt to award a permanent injunction ‘after proper proof.’” In addition, the court said it may award monetary relief because the FTC brought claims under both sections 13(b) and 19 of the FTC Act and “section 19(b) contemplates the ‘refund of money,’ the ‘return of property,’ or the ‘payment of damages’ to remedy consumer injuries[.]”
2nd Circuit says collection letter sent on law firm letterhead did not violate FDCPA
On February 13, the U.S. Court of Appeals for the Second Circuit affirmed summary judgment in favor of a defendant law firm accused of violating the FDCPA when it sent the plaintiff a collection letter on law firm letterhead. The plaintiff claimed both that the letter overshadowed her validation notice by failing to advise her that her validation rights were not overridden because her account had been placed with a law firm and that the letter falsely implied it was a communication from an attorney even though no attorney was meaningfully involved in collecting the debt, which courts have found is prohibited under the FDCPA. The district court granted summary judgment to the defendant on both grounds. The district court held that “because there was meaningful attorney involvement in the collection of plaintiff’s debt,” the letter was not required to include a disclaimer regarding the lack of attorney involvement in the debt collection effort. Additionally, the district court held that because the letter did not refer to any consequences should the plaintiff fail to repay the outstanding debt, “the mere fact that [the] Collection Letter is printed on law firm letterhead does not, by itself, imply an immediate threat of legal action overshadowing a validation notice in violation of the FDCPA.” The plaintiff appealed.
In affirming the grant of summary judgment, the appellate court rejected the plaintiff’s argument that, because several of the steps the attorney supposedly followed were “performed by non-attorneys,” were “automated,” or could have been completed in a minimal amount of time, there was not meaningful attorney involvement. According to the 2nd Circuit, even if these facts were true, they did not refute the attorney’s “statement that he conducted a meaningful legal analysis of [plaintiff’s] account and ‘formed an opinion about how to manage [the] case.’” “We have never established a specific minimum period of review time to qualify as meaningful attorney involvement, and the only function that [plaintiff] has identified that [defendant] did not perform before approving the letter was establishing a specific plan to sue in the event of non-payment.” Consequently, the appellate court concluded that the FDCPA did not require the defendant to provide a disclaimer in its initial collection letter to the plaintiff.
Massachusetts AG reaches $6.5M settlement over deceptive auto-renewal and collection practices
The Massachusetts attorney general recently reached a $6.5 million settlement with a home security services company, its sister companies, and its CEO to resolve allegations that the defendants violated Massachusetts consumer protection laws by trapping customers in auto renewal contracts and engaging in illegal debt collection practices. The final judgment by consent, filed in Suffolk County Superior Court, resolves a 2019 lawsuit alleging the defendants engaged in unfair and deceptive tactics to prevent customers from canceling their contracts, charged for services during system outages or for services that were never provided, steered customers into contract renewal instead of cancellation, and engaged in aggressive and illegal debt collection practices. Under the terms of the settlement, the defendants are required to pay $1.8 million and waive and forgive $4.7 million of outstanding customer debt. Although they denied the allegations, the defendants have agreed to implement changes to their business practices, including taking measures to come into compliance with the attorney general’s debt collection regulations, offering credits to customers who purchased non-functional systems that cannot be repaired, implementing new complaint procedures, and permitting existing customers to cancel their contracts by telephone, email, and web portal. Additionally, the defendants will make several revisions to the terms of their contracts relating to auto-renewal practices, monitoring charges, cancellation policies and procedures, late fees and other costs.
California Dept. of Real Estate reminds licensees of fiduciary duty requirements
The California Department of Real Estate (DRE) recently reminded real estate licensees with a mortgage loan origination (MLO) endorsement of their fiduciary duty to borrowers. DRE licensees (including brokers, salespersons, and broker-associates supervised by a broker) who provide mortgage brokerage services to a borrower act as a fiduciary of that borrower, the DRE said, explaining that this “includes placing the economic interest of the borrower ahead of their own.” The Bulletin noted that California courts have held that the fiduciary relationship not only requires the broker to act in the highest good faith toward their client but also prohibits the broker from obtaining any advantage over the client by virtue of the fiduciary relationship. Licensees who violate their fiduciary duties may face DRE-disciplinary action against their real estate license and/or MLO endorsement and may also expose themselves to civil liability.
Licensees are reminded that they are required to be aware of all laws, regulations, and rules governing their activities, including the federal Loan Originator Compensation (LO Comp) Rule, which “prohibits loan originators, including brokers, from receiving compensation based on the terms of consumer mortgage transactions.” Prior to the LO Comp Rule, mortgage brokers often received commissions that varied based on the terms of the mortgage loans they obtained for their clients, and in many cases received larger commissions on loans carrying less advantageous terms (e.g., loans with a higher interest rate would result in a larger commission than the same loan with a lower interest rate). The LO Comp Rule now prohibits this practice.
The Bulletin also reminded licensees that receiving greater compensation for acting against the economic interests of a consumer would also violate a broker’s fiduciary responsibility to place the economic interest of their client ahead of their own, should the decision be motivated by a financial desire to increase compensation. Further, licensees may not steer or direct a borrower to close a loan with a particular lender in exchange for receiving a higher commission unless the transaction is the best loan for the borrower. Licensees must also disclose to a borrower the costs and expenses associated with the loan, and disclose all compensation received in the transaction. Taking any secret or undisclosed compensation, commission, or profit is also prohibited, the Bulletin said.