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  • District Court says debtor bears the burden of asserting a garnishment exemption

    Courts

    On December 15, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant’s motion for judgment on the pleadings in a debt collection garnishment suit. One of the plaintiffs was referred to collections after he defaulted on his credit card debt, and a judgment was entered against him by the original creditor. The defendant filed for a writ of execution, seeking to garnish funds that were in a joint bank account maintained by both plaintiffs. The writ outlined major exemptions under Pennsylvania and federal law, noting that the plaintiff may also be able to rely on other exemptions, and instructed him to complete a claim for exemption. Plaintiffs sued for violations of the FDCPA, claiming, among other things, that the defendant should have known that the account was a joint account, and therefore exempt, before seeking the writ of execution. According to the plaintiffs, the defendant should have known or reasonably known “that the funds in the joint account were immune from execution because it ‘performed its own private asset search to discover’ the account.” The court disagreed, holding, that under Pennsylvania’s garnishment procedures, the debtor bears the burden of asserting an exemption. This assertion, the court said, must be more than a “self-serving statement that an exemption applies.”

    The court cited a ruling issued by the U.S. District Court for the Southern District of California, in which the court determined that “[t]he bottom line here is that, right or wrong, a judgment creditor has no duty under either California or federal law to investigate, much less confirm, that a judgment debtor’s bank accounts contain only non-exempt funds prior to authorizing a levy on those accounts. It is unreasonable to conclude that a judgment creditor’s failure to conduct a pre-levy debtor’s exam, when there is no legal obligation or requirement to do so, constitutes unfair or unconscionable action.”

    Courts State Issues Pennsylvania Consumer Finance FDCPA Debt Collection

  • Gaming company to pay $520 million to resolve FTC allegations

    Federal Issues

    On December 19, the DOJ filed a complaint on behalf of the FTC against a video game developer for allegedly violating the Children’s Online Privacy Protection Act (COPPA) by failing to protect underage players’ privacy. The FTC also alleged in a separate administrative complaint that the company employed “dark patterns” to trick consumers into making unwanted in-game purchases, thus allowing players to accumulate unauthorized charges without parental involvement. (See also FTC press release here.)

    According to the complaint filed in the U.S. District Court for the Eastern District of North Carolina, the company allegedly collected personal information from players under the age of 13 without first notifying parents or obtaining parents’ verifiable consent. Parents who requested that their children’s personal information be deleted allegedly had to take unreasonable measures, the FTC claimed, and the company sometimes failed to honor these requests. The company is also accused of violating the FTC Act’s prohibition against unfair practices when its settings enabled, by default, real-time voice and text chat communications for children and teens. These default settings, as well as a matching system that enabled children and teens to be matched with strangers to play the game, exposed players to threats, harassment, and psychologically traumatizing issues, the FTC maintained. While company employees expressed concerns about the default settings and players reported concerns, the FTC said that the company resisted turning off the default setting and made it difficult for players to figure out how to turn the voice chat off when the FTC did eventually take action.

    Under the terms of a proposed court order filed by the DOJ, the company would be prohibited from enabling voice and text communications unless parents (of players under the age of 13) or teenage users (or their parents) provide affirmative consent through a privacy setting. The company would also be required to delete players’ information that was previously collected in violation of COPPA’s parental notice and consent requirements unless it obtains parental consent to retain such data or the player claims to be 13 or older through a neutral age gate. Additionally, the company must implement a comprehensive privacy program to address the identified violations, maintain default privacy settings, and obtain regular, independent audits. According to the DOJ’s announcement, the company has agreed to pay $275 million in civil penalties—the largest amount ever imposed for a COPPA violation.

    With respect to the illegal dark patterns allegations, the FTC claimed that the company used a variety of dark patterns, such as “counterintuitive, inconsistent, and confusing button configuration[s],” designed to get players of all ages to make unintended in-game purchases. These tactics caused players to pay hundreds of millions of dollars in unauthorized charges, the FTC said, adding that the company also charged account holders for purchases without authorization. Players were able to purchase in-game content by pressing buttons without requiring any parental or card holder action or consent. Additionally, the company allegedly blocked access to purchased content for players who disputed unauthorized charges with their credit card companies, and threatened players with a lifetime ban if they disputed any future charges. Moreover, cancellation and refund features were purposefully obscured, the FTC asserted.

    To resolve the unlawful billing practices, the proposed administrative order would require the company to pay $245 million in refunds to affected players. The company would also be prohibited from charging players using dark patterns or without obtaining their affirmative consent. Additionally, the order would bar the company from blocking players from accessing their accounts should they dispute unauthorized charges.

    Federal Issues FTC DOJ Enforcement Privacy, Cyber Risk & Data Security COPPA FTC Act Unfair UDAP Consumer Finance Dark Patterns

  • 10th Circuit: Vendor knowledge of consumer debt is not a public disclosure

    Courts

    On December 16, the U.S. Court of Appeals for the Tenth Circuit affirmed a lower court’s dismissal of an FDCPA suit. According to the opinion, the plaintiff, who had student loan debt, received a collection letter from the defendant that listed the assigned balance as $184,580.73 and the debt balance as $217,657.60 without explaining the difference or that the debt could increase due to interest, fees, and other charges. The defendant, who used an outside mailer to compose and send the letters, sent her two more letters without providing an explanation for the balances. The plaintiff sued, alleging the defendant violated the FDCPA by communicating information about the debt to a vendor that printed and mailed the letters. According to the plaintiff, communicating this information violated FDCPA provisions that prohibit debt collectors from communicating with, in connection with the collection of any debt, any person without the consumer’s consent or court permission. The plaintiff also claimed that the defendant violated the FDCPA by misrepresenting the amount of the debt because it did not indicate that the amount of the debt may increase.

    On the appeal, the appellate court affirmed dismissal after it found that the plaintiff lacked standing since neither of the plaintiff’s claims caused a concrete injury. First, the appellate court found that one private entity knowing about the plaintiff’s debt is not a public disclosure of private facts, which does not rise to the level of sustaining a concrete injury needed to sue in federal court. Second, regarding the substance of the letters, the appellate court noted that the plaintiff simply claimed that the letters she received caused her to be confused and to believe the debt was not accruing interest. However, the appellate court found that “confusion and misunderstanding are insufficient to confer standing.”

    Courts Tenth Circuit Appellate FDCPA Student Lending Debt Collection Consumer Finance

  • FTC proposes to permanently ban credit repair operation

    Federal Issues

    On December 15, the FTC announced proposed court orders to permanently ban a group of companies and their owners (collectively, “defendants”) from offering or providing credit repair services. In May the FTC filed a complaint against the defendants for allegedly violating the FTC Act, the Credit Repair Organizations Act, and the TSR, among other statutes, by making deceptive misrepresentations about their credit repair services and charging illegal advance fees (covered by InfoBytes here). At the time, the U.S. District Court for the Middle District of Florida granted a temporary restraining order against the defendants. The proposed court orders (see here and here) were agreed to by the defendants, and contain several requirements: (i) a permanent ban against the defendants from operating or assisting any credit repair service of any kind; (ii) a prohibition against making unsubstantiated claims “about the benefits, performance, or efficacy of any good or service without sufficient supporting evidence”; and (iii) the release of numerous possessions that will be liquidated by a court-appointed receiver and used by the FTC to provide refunds to impacted consumers. The proposed court orders also include a total monetary judgment of more than $18.8 million, which is partially suspended due to the defendants’ inability to pay.

    Federal Issues Courts FTC Enforcement Credit Repair FTC Act Telemarketing Sales Rule Credit Repair Organizations Act UDAP Deceptive Consumer Finance

  • New Jersey settles with car dealerships over consumer protection violations

    State Issues

    On December 15, the New Jersey attorney general announced that the Division of Consumer Affairs has now reached settlements with six car dealerships totaling over $260,000 to resolve alleged consumer protection violations. Among other things, the dealerships allegedly failed to honor the advertised price of used vehicles, charged excessive vehicle preparation fees that were not properly itemized or disclosed, failed to disclose the vehicle’s full sale price, and engaged in deceptive advertising. Under the terms of the most recent settlement (joining five other settlements announced earlier in the year), the dealership is required to pay $180,000, and must stop engaging in any unfair or deceptive acts practices. The dealership must also (i) comply with all applicable state and federal laws, including the Consumer Fraud Act, the Motor Vehicle Advertising Regulations, and the Automotive Sales Practices Regulations; (ii) honor all advertised sale or lease prices; (iii) accurately disclose a vehicle’s sale price; (iv) disclose previous damage and substantial repairs done to used cars when advertising; (v) clearly and conspicuously disclose all disclaimers, qualifiers, or offer limitations in advertisements; and (vi) enter binding arbitration to resolve any pending consumer complaints, as well as any additional complaints received by the Division for a one-year period.

    State Issues Enforcement State Attorney General Consumer Finance Fees Auto Finance New Jersey Deceptive UDAP

  • OCC reports on third quarter mortgage performance

    On December 15, the OCC announced the release of OCC Mortgage Metrics Report, Third Quarter 2022, in which it reported that “97.2 percent of mortgages included in the report were current and performing at the end of the quarter, compared to 95.6 percent a year earlier.” As explained in the report, servicers initiated 9,835 new foreclosures in the third quarter of 2022—a decrease from the previous quarter but an increase from a year ago. The foreclosure volume in this reporting period is lower than pre-Covid-19 pandemic foreclosure volumes, the OCC said. Servicers also completed 16,160 mortgage modifications in the third quarter—a 42.5 percent decrease from the previous quarter. Of these modifications, 72.4 percent reduced a loan’s pre-modification monthly payment, and 93.1 percent consisted of a combination modification containing multiple actions such as interest rate reductions and term extensions. Additionally, the OCC found that during the reporting period, first-lien mortgages represented 22 percent of all outstanding residential mortgage debt (or approximately 12 million loans equaling $2.7 trillion in principal balances).

    Bank Regulatory Federal Issues OCC Mortgages Mortgage Servicing Covid-19 Consumer Finance

  • Chopra testifies at congressional hearings

    Federal Issues

    On December 14, CFPB Director Rohit Chopra testified at a hearing titled Consumers First: Semi-Annual Report of the Consumer Financial Protection Bureau held by the House Financial Services Committee on the CFPB’s most recent semi-annual report to Congress (covered by InfoBytes here). Chopra’s prepared statement focused on: (i) the current state of the economy and household finance; (ii) promoting an open, competitive, and a decentralized market; and (iii) actions by Congress where bipartisan support is expected. Chopra also cited concerns regarding the accuracy of medical debt credit reporting and noted that the CFPB is continuing “to examine how medical debt burdens are impacting household balance sheets.”

    House Financial Services Chairwoman Maxine Waters (D-CA) praised Chopra’s leadership in her opening statement, stating that the Bureau has combated “redlining, housing discrimination, illegal evictions, and foreclosures, and has worked tirelessly to root out appraisal bias.” However, Ranking Member Patrick McHenry (R-PA) argued that the Bureau’s “lack of transparency is of grave concern.” McHenry discussed the CFPB’s six compliance bulletins, five advisory opinions, five interpretive rules, and seven circulars published this year, which he considers to have fostered “uncertainty” within the financial services industry. McHenry also warned Chopra that he can expect “much more thorough” oversight next year when Republicans take control of the House and when McHenry becomes the chair of the House Financial Services Committee.

    During the hearing, Chopra acknowledged that the Bureau's Section 1071 Rulemaking “is on track to issue a final rule by March 31, 2023”—a deadline established by court order in July as a result of a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data (covered by InfoBytes here). Chopra added that the Bureau wants to ensure it has “an implementation period that gives the smaller firms more time, and the ability to make sure it’s not duplicative with existing requirements under the Community Reinvestment Act.”

    During the hearing, Republican committee members inquired about the agency’s creation and use of the term “junk fees” to describe, among other things, legal fees that banks charge for financial products and services. According to Rep. Blaine Luetkemeyer (R-MO) “there is no such word in financial services lexicon,” and the Bureau is “making up a word and then using it to go out and enforce something that doesn’t exist.” Republican committee members also inquired about the Bureau’s recent updates to its UDAAP exam manual. As previously covered by a Buckley Special Alert, in March, the CFPB announced significant revisions to its UDAAP exam manual, in particular highlighting the CFPB’s view that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service. Rep. Andy Barr (R-KY) commented that “this is not interpretive guidance,” and said Chopra is “trying to change the law.”

    Chopra reiterated the Bureau’s priorities in his December 15 testimony before the Senate Banking Committee. During the hearing, Ranking Member Sherrod Brown (D-OH) noted that Republican lawmakers proposed legislation to subject the CFPB to appropriations and to change the CFPB's single-director structure to a commission. Chopra was also questioned by Ranking Member Patrick Toomey (R-PA) who raised concerns regarding the Bureau’s “overreach and pursuit of a politicized agenda.” He further argued that “the Dodd-Frank Act exempted the CFPB from appropriations,” and “empowers the CFPB to simply take funds from the Fed, which is itself also not subject to appropriation, thereby doubly insulating the CFPB from any congressional control.” Other topics discussed during the hearing included, among other things, military lending, credit cards, and overdraft fees. 

    Federal Issues CFPB House Financial Services Committee Senate Banking Committee Section 1071 Consumer Finance Overdraft Junk Fees UDAAP

  • FHA announces pandemic assistance on reverse mortgages

    Federal Issues

    On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:

    • Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
    • Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
    • Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.

    Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.

    Federal Issues Agency Rule-Making & Guidance FHA HECM Mortgages Mortgage Servicing Covid-19 Consumer Finance

  • District Court approves $4.24 million overdraft settlement

    Courts

    On December 9, the U.S. District Court for the Southern District of Florida granted final approval to a $4.24 million class action settlement resolving allegations related to a defendant bank’s overdraft fee practices. Plaintiff alleged breach of contract claims related to the defendant’s practice of charging overdraft fees on checks and automated clearing house transactions that were paid by the defendant despite customer accounts having insufficient funds. The overdraft fees were allegedly charged after the transaction was resubmitted by a merchant or third party after having previously been returned unpaid by the defendant for insufficient funds. The parties reached a settlement in which the defendant will pay $4.24 million into a settlement fund to provide relief to class members (defined as all current and former consumer checking account holders who were charged at least one retry overdraft fee). The settlement also include $1.4 million in attorneys’ fees. A service award for the class representative was denied, however, with the court explaining that the law in its circuit makes “clear that incentive awards ‘that compensate a class representative for [her] time and rewards her for bringing a lawsuit’ are prohibited.”

    Courts Consumer Finance Class Action Settlement Overdraft

  • CFPB to issue $95 million in redress to victims of student loan debt relief operation

    Federal Issues

    On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by a student loan debt relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.

    Federal Issues State Issues State Attorney General CFPB Consumer Redress Consumer Finance Enforcement Student Lending CFPA TSR Minnesota North Carolina

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