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House subcommittee asks CFPB to review CRAs' handling of consumer disputes
On October 13, Chairman of the Select Subcommittee on the Coronavirus Crisis James E. Clyburn sent a letter to CFPB Director Rohit Chopra addressing reports that nationwide consumer reporting agencies (CRAs) were less responsive to consumer complaints and disputes related to credit report errors during the Covid-19 pandemic. According to Clyburn, investigative reports allegedly revealed that the CRAs, which are legally obligated to address errors contained in consumer credit reports, did not always investigate these disputes and purportedly used “broad and speculative criteria” to determine whether a dispute was submitted by an unauthorized third party. The letter also expressed concerns that the CRAs’ alleged “overreliance on data furnishers” raises questions about the sufficiency of the CRAs’ dispute investigations, and that, moreover, using different levels of automation to resolve disputes and complaints is creating variability in the quality and thoroughness of their investigations. Clyburn expressed concerns that by failing to investigate certain legitimate disputes, identify and correct erroneous information, or provide the Bureau with information on the outcomes of the complaint investigations, the CRAs may be failing to meet their obligations under the FCRA. He asked Chopra to review the CRAs for possible statutory violations and to “consider investigating whether the CRAs have made sufficient revisions to their procedures for identifying and taking corrective action against unreliable furnishers.”
FHFA proposes amendments to help GSEs better serve colonias
Recently, FHFA announced a notice of proposed rulemaking (NPRM) to amend its Enterprise Duty to Serve Underserved Markets regulation. Under Section 1129 of the Housing and Economic Recovery Act of 2008, Fannie Mae and Freddie Mac (GSEs) are required to develop loan products and flexible underwriting guidelines for facilitating “a secondary market for mortgages on housing for very low-, low-, and moderate-income families for the manufactured housing, affordable housing preservation, and rural housing markets.” The amendments would add a “colonia census tract” definition, which would serve as a census tract-based proxy for a “colonia” (as generally applied to “unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions”), and would amend the “high-needs rural region” definition by substituting “colonia census tract” for “colonia.” The NPRM would also revise the definition of “rural area” to include all colonia census tracts regardless of their location, in order to make GSE activities in all colonia census tracts eligible for duty to serve credit. “FHFA is committed to promoting affordability, equity, and sustainability in the nation’s housing finance markets, especially in underserved communities,” FHFA Director Sandra L. Thompson said in the announcement. “With this rule, we seek to remove barriers that have hindered the [GSEs’] Duty to Serve activities for people living in colonias.”
Biden authorizes borrowers to separate joint consolidation loans
On October 11, President Biden signed S. 1098, which amends the Higher Education Act of 1965 to authorize borrowers to separate joint consolidation loans. According to the bill, borrowers are permitted to split up federally guaranteed student loans held by private lenders into two new federal direct loans. The bill is effective immediately.
CFPB releases annual college credit card report
On October 13, the CFPB released its annual report to Congress on college credit card agreements. The report was prepared pursuant to the CARD Act, which requires card issuers to submit to the CFPB the terms and conditions of any agreements they make with colleges, as well as certain organizations affiliated with colleges. According to the Bureau, the report “raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education rules.” The report also highlighted the need for transparency in the arrangements schools have with financial institutions. In conjunction with the report, the DOE issued guidance clarifying colleges’ responsibility to ensure that campus financial products are consistent with students’ best financial interests, including by reviewing whether any fees assessed are consistent with or below prevailing market rates. The DOE’s guidance discussed overdraft and NSF fees, given that financial institutions in the general market have increasingly been reducing or eliminating certain fees. The Bureau’s report included data on 11 account providers, including non-bank financial service providers, banks, and credit unions offering more than 650,000 student accounts in partnership with 462 institutions of higher education during the 2020-2021 award year. Key findings of the report include, among other things: (i) financial services providers and their partner schools appear to offer and promote more costly products to students than are otherwise available in the market; (ii) one entity dominates the market for financial aid disbursements, providing nearly 70 percent of the accounts offered in partnership with schools; and (iii) nearly 30 percent of accounts in the Bureau’s sample were subject to arrangements in which the financial services provider made payments to the partner school.
New York announces $1.9 million data breach settlement with global retailer
On October 12, the New York attorney general announced a $1.9 million settlement with an international e-commerce retailer for failing to properly handle a 2018 data breach. According to the settlement, the e-commerce owns and operates two brands (collectively, “respondents”), which experienced a data breach that caused 39 million accounts to be stolen, including accounts for more than 800,000 New York residents. The AG found, among other things, that the respondents failed to properly safeguard consumers’ information, failed to adhere to requirements for protecting stored credit card data, and misrepresented the extent of the cyberattack to consumers. As a result of the settlement, the respondents are required to pay New York $1.9 million in penalties and costs, and must maintain a comprehensive information security program that includes robust hashing of customer passwords, among other things.
District Court partially dismisses FDCPA suit concerning disputed debt
On October 5, the U.S. District Court for the District of Arizona partially granted a defendant’s motion to dismiss in an FDCPA suit, which alleged that the defendant furnished information to the credit reporting agencies (CRAs) that did not belong to the plaintiff. According to the order, the plaintiff noticed that the defendant was reporting a collection account to the CRAs for a debt he did not recognize. He called the defendant who was unable to locate the plaintiff through his personal identifiers. The defendant told the plaintiff that the debt reporting on the plaintiff’s credit report was a medical debt and was owed by a third party with a different name and a different social security number. After the defendant confirmed that the debt did not belong to him, the plaintiff submitted a dispute to the CRA challenging the defendant’s reporting of the debt and requested that the defendant and the CRA remove the debt from his report. The CRA notified the defendant of the plaintiff’s dispute within five days of receiving the dispute. The defendant allegedly continued to report the debt as belonging to the plaintiff to the CRA, and did not request that the CRA note on the plaintiff’s credit report that the debt was disputed by the plaintiff. The plaintiff claimed that the defendant violated the FDCPA, contending that his “credit score has decreased as a result of [the defendant’s] erroneous credit reporting, which has frustrated [the plaintiff’s] ability to obtain credit.” The plaintiff also alleged that he suffered emotional distress and anxiety.
The defendant argued that it did not violate the FDCPA because it was the CRA that connected the underlying debt to the plaintiff’s credit report. The defendant also argued that the plaintiff did not provide the defendant with an appropriate period of time to mark the debt as disputed before filing the suit in question. The court found that the plaintiff had stated a claim upon which relief could be granted, explaining, among other things, that the defendant “does not point to any authority that, to state a claim under § 1692e(8), reporting of a debt must be to a credit report as opposed to any third party.” However, the court dismissed the § 1692f claim on the ground that the underlying conduct was already covered in the 1692e(8) claim.
NYDFS announces fair lending settlement with indirect auto lender
On October 6, NYDFS announced a settlement with a New York State-licensed bank to resolve allegations that the bank violated New York Executive Law § 296-a while engaged in indirect automobile lending. NYDFS alleged that the bank’s practices resulted in minority borrowers paying higher interest rates than non-Hispanic white borrowers regardless of their creditworthiness. According to the announcement, the bank allegedly “failed to effectively monitor automobile dealers from which [the bank] agreed to purchase loans, thereby allowing the dealers to charge members of protected classes more in discretionary dealer markups than borrowers identified as non-Hispanic White.” Under the terms of the consent order, the bank agreed to pay a $950,000 civil money penalty to the state, as well as restitution to eligible borrowers impacted during the period of January 1, 2017 through March 31, 2022. The bank also agreed to undertake fair lending compliance remediation efforts to increase its monitoring of dealers participating in its indirect auto lending program to precent discriminatory markups in the future.
District Court rules in favor of debt collectors in FDCPA, FCRA dispute
On October 7, the U.S. District Court for the Eastern District of Pennsylvania granted defendants’ motion for summary judgment in an FDCPA, FCRA action. According to the opinion, the plaintiff took out a $20,000 loan but never made any payments on the loan. The charged off loan was assigned to the defendant debt purchaser, and a written notice was sent to the plaintiff who requested validation of the debt. The defendant loan servicer provided the account information to the plaintiff and later began furnishing the information to the consumer reporting agencies (CRAs). The plaintiff sued alleging the defendants violated sections 1681s-2(a) and 1681s-2(b) of the FCRA, as well as multiple sections of the FDCPA. Under section 1681s-2(b), a furnisher who has been notified by a CRA of a consumer dispute is required to conduct a reasonable investigation and follow certain procedures. The court noted, however, that these obligations are only triggered if the furnisher received such notice. In this instance, there is no record showing that any CRA reported the plaintiff’s dispute to the defendants, the court said, adding that, moreover, section 1681s-2(a) does not include a private right of action. With respect to the plaintiff’s FDCPA claims, the court determined that, among other things, (i) the plaintiff failed to provide evidence supporting the majority of his claims; (ii) section 1692g does not require the defendants to verify the plaintiff’s account by providing documentation bearing his signature or providing the contractual agreement governing the debt (in this instance, the defendant loan servicer met the minimal requirements by providing an account summary report); and (iii) that nothing in section 1692g requires a debt collector to respond to a dispute within 30 days—this timeframe only applies to when a debtor must dispute a debt, not to the debt collector’s period to provide verification, the court wrote.
CFPB blogs about challenging inaccurate appraisals
On October 6, the CFPB released a blog post regarding mortgage borrowers’ ability to challenge inaccurate appraisals through the reconsideration of value process (ROV). Among other things, the CFPB explained that “[a] lender’s reconsideration of value process must ensure that all borrowers have an opportunity to explain why they believe that a valuation is inaccurate and the benefit of a reconsideration to determine whether an adjustment is appropriate.” As required under the Equal Credit Opportunity Act Valuations Rule, the Bureau explained that some lenders include information regarding how to request a ROV in appraisals and other home valuations. The Bureau further noted that when lenders provide clear, plain-language notice of ROV opportunities to borrowers, lenders help ensure that their ROV process is nondiscriminatory. Lenders that do not have a clear and consistent method to ensure that borrowers can seek a ROV may risk violating federal law. The Bureau added that it has taken steps to implement legal requirements to limit bias in algorithmic appraisals, and that regulators are also providing more oversight over the activities of the Appraisal Foundation.
CFPB seeks comments on mortgage refinance and forbearance standards
On September 27, the CFPB issued a notice in the Federal Register requesting input from the public regarding (i) the availability of refinance loans for borrowers with smaller mortgage loan balances, and (ii) options for mortgage forbearance. Specifically, the Bureau sought ways to: (i) “facilitate mortgage refinances for consumers who would benefit from refinancing, especially consumers with smaller loan balances”; and (ii) “reduce risks for consumers who experience disruptions in their financial situation that could interfere with their ability to remain current on their mortgage payments.” The Bureau also noted that some stakeholders have suggested that changes to the Bureau’s ability-to-repay/qualified mortgage rule (ATR–QM rule) may play a role in facilitating beneficial refinances through targeted and streamlined programs, noting that the current rule references “frictions” in the refinance process tied to QM standards. Comments are due by November 28.