Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • VA issues circular on loss mitigation options for CARES Act forbearance cases

    Federal Issues

    On September 14, the Department of Veterans Affairs issued Circular 26-20-33, which clarifies whether, due to the impact of Covid-19, servicers may offer deferment as a Covid-19 loss mitigation option. Deferment may be used if the veteran is able to resume making monthly payment as scheduled under the loan contract after the conclusion of the forbearance period. However, for the VA’s purposes, servicers do not need to, and should not, enter into a modification agreement that modifies the terms of the existing loan for the purpose of applying a deferment. To accommodate the deferment option, the VA has temporarily waived the usual requirement that the final installment on any loan not be in excess of two times the average of the preceding installments. This waiver applies only where the servicer offers a deferment as a Covid-19 loss mitigation option to a borrower who requested CARES Act forbearance, among other conditions in the circular. The circular is rescinded October 1, 2021.

    Federal Issues Covid-19 Department of Veterans Affairs Loss Mitigation CARES Act Forbearance

  • 5th Circuit: Omitting a favorable credit item does not render a credit report misleading

    Courts

    On September 9, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a plaintiff’s FCRA claims against two consumer reporting agencies (CRAs), holding that omitting a favorable credit item does not render a credit report misleading. The plaintiff filed a lawsuit after the CRAs stopped reporting a favorable item—a timely paid credit card account—and refused to restore it, alleging that the refusal to include the item on his consumer report violated section 1681e(b), which requires CRAs to follow “reasonable procedures to assure maximum possible accuracy” of consumer information. As a result, the plaintiff claimed his creditworthiness was harmed, which caused him to be denied a credit card and rejected for a mortgage. The district court dismissed the suit.

    In affirming the dismissal, the 5th Circuit found that the omission of a single credit item does not render a report ”inaccurate” or “misleading.” According to the appellate court, a “credit report does not become inaccurate whenever there is an omission, but only when an omission renders the report misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” As such, “[b]usinesses relying on credit reports have no reason to believe that a credit report reflects all relevant information on a consumer.” The 5th Circuit further held, among other things, that the plaintiff failed to state a claim for violations of section 1681i(a), which requires agencies to conduct an investigation if consumers dispute “the completeness or accuracy of any item of information contained in a consumer’s file.” The court held that because the plaintiff “disputed the completeness of his credit report, not of an item in that report,” the statute did not require an investigation.

    Courts Credit Reporting Agency Appellate Fifth Circuit Credit Report Consumer Finance FCRA

  • 11th Circuit sides with satellite cable provider in FCRA action

    Courts

    On September 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of a cable satellite company, concluding that the company had a “legitimate business purpose” under the FCRA to obtain a consumer’s credit report. According to the opinion, in 2016, following an identity theft, the consumer entered into a settlement agreement with the cable satellite company after the consumer’s personal information was used to fraudulently open two accounts for television services. As part of the agreement, the company put the consumer’s personal information into an internal mechanism designed to flag and prevent unauthorized accounts. In 2017, an unknown individual applied for an account online using some of the consumer’s information. The company’s automated systems sent the information to a consumer reporting agency (CRA), which matched the information to the consumer and resulted in the cable satellite company blocking the account from being opened. Upon request by the company, the CRA deleted the inquiry from the consumer’s credit file. The consumer filed an action alleging that the company breached the settlement agreement and “negligently and willfully obtained the January 2017 consumer report without a ‘permissible purpose’” in violation of the FCRA. While the action was pending, two more attempts were made to use the consumer’s information to open accounts and the satellite company blocked both. The district court granted summary judgment in favor of the satellite company.

    On appeal, the 11th Circuit agreed with the district court, concluding that the satellite company had a “legitimate business purpose” to access the credit report. Specifically, the appellate court noted that the “FCRA does not explicitly require a user of consumer reports to confirm beyond doubt the identity of potential consumers before requesting a report.” Moreover, the satellite company was dependent on the credit report to access the consumer’s full social security number and “cross-check that information via its internal mechanisms.” Additionally, the appellate court rejected a claim for breach of the settlement agreement, noting that the company satisfied the terms of the agreement by flagging the social security number in its internal systems and using that system to block the fraudulent application for an account.

    Courts FCRA Credit Reporting Agency Credit Report Appellate Eleventh Circuit

  • Court approves additional settlements in CFPB student debt relief action

    Courts

    On September 8, the U.S. District Court for the Central District of California entered a stipulated final judgment against two additional defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, 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. Four defendants settled in August, with a total suspended judgment of over $95 million due to the defendants’ inability to pay and total payments of $90,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties.

    The new final judgment holds the two relief defendants liable for nearly $7 million in redress; however, the judgment is suspended based on an inability to pay. The defendants are not subject to any civil money penalties, but are required to relinquish certain assets and submit to certain reporting requirements.

    Courts CFPB Student Lending State Attorney General CFPA Telemarketing Sales Rule UDAAP Debt Relief

  • 2nd Circuit: No bona fide error defense without written policies to avoid the error

    Courts

    On September 4, the U.S. Court of Appeals for the Second Circuit affirmed in part and vacated in part a summary judgment ruling in favor of a debt collector, concluding that the debt collector was not entitled to the FDCPA’s bona fide error defense as a matter of law when it erroneously sent communications to a consumer with the same name as the actual debtor. According to the opinion, a debt collector sent collection notices to a consumer with the same first name, middle initial, and last name as the actual debtor. The consumer informed the debt collector that he was not the debtor and provided the last two digits of his social security number, which were different than the debtor’s social security number on file with the debt collector. The debt collector continued to send communications, including a subpoena duces tecum, to the consumer and the consumer filed suit, alleging various violations of the FDCPA. The district court granted summary judgment in favor of the debt collector, concluding that the debt collector did not violate certain provisions of the FDCPA and noting that while it violated others, the FDCPA’s bona fide error defense applied making the debt collector not liable for the violations.

    On appeal, the 2nd Circuit agreed with the district court that the debt collector did not violate Section 1692e(5) or Section 1692f of the FDCPA because it did not intend to send the communications to a non-debtor, nor did the debt collector’s actions constitute “unfair or unconscionable means” of collection because the consumer was not forced to respond to the information subpoena or attend a debtor’s examination. However, the appellate court determined that the district court erred in granting summary judgment on the bona fide error defense because a reasonable jury could conclude that the debt collector “did not maintain procedures reasonably adapted to avoid its error.” The appellate court also noted that the debt collector was “in possession of more than enough evidence” that the consumer was not the debtor, including different social security numbers and birth years, and a reasonable jury could conclude the mistake “was not made in good faith.” Additionally, the appellate court emphasized that the debt collector had “no written policies” to address situations in which employees are uncertain about whether a debtor may live at a particular address. Thus, the debt collector was not entitled to summary judgment on the outstanding FDCPA claims, and the appellate court remanded the case to the district court.

    Courts Second Circuit Appellate Debt Collection FDCPA Bona Fide Error

  • Nevada Dept. of Business and Industry extends work from home guidance

    State Issues

    On August 21, the Nevada  Department of Business of Industry, Division of Mortgage Lending extended its provisional guidance allowing licensed mortgage loan originators to work from home (previously covered here and here) until December 31, 2020.

    State Issues Covid-19 Nevada Licensing Mortgage Origination Mortgages

  • Judicial Council of California votes to end temporary eviction and judicial foreclosure rules

    State Issues

    On August 13, the Judicial Council of California voted to end two temporary emergency rules governing evictions and judicial foreclosures. The first rule prohibited the issuance of summons or entering of defaults in eviction actions unless the case involved public health and safety issues, and required that trials be set at least 60 days after a request for a trial. The second emergency rule stayed all pending judicial foreclosure actions other than those involving issues of public health and safety, tolled the statute of limitations on filing such actions, and extended the deadlines for election or exercise of rights relating to such actions. Pursuant to the vote, the rules end on September 1, 2020. The Judicial Council previously approved the temporary emergency rules staying eviction and foreclosure proceedings on April 6, 2020.

    State Issues Covid-19 California Evictions Foreclosure Mortgages

  • FTC settles with student debt relief operation for $835,000

    Federal Issues

    On September 9, the FTC announced an $835,000 settlement with the operators of a student loan debt relief operation, resolving allegations against five individuals (collectively, “defendants”) whom the FTC claims engaged in deceptive marketing and charged illegal upfront fees. According to the November 2019 complaint, filed in the U.S. District Court for the Central District of California against the defendants and several others, the defendants allegedly used telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule. The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization.

    The settlement order includes a monetary judgment of over $43 million, which is partially suspended due to the defendants’ inability to pay. The defendants “will be required to surrender at least $835,000 and additional assets, which will be used for consumer redress.” Additionally, the defendants are prohibited from providing student debt relief services in the future and they must cooperate in the FTC’s pursuit of the case against the remaining defendants.

    Federal Issues FTC Telemarketing Sales Rule FTC Act Deceptive UDAP Student Lending Debt Relief

  • OCC revises the Comptroller’s Licensing Manual

    Agency Rule-Making & Guidance

    On September 9, the OCC announced an updated version of its “Federal Branches and Agencies” booklet of the Comptroller’s Licensing Manual. According to Bulletin 2020-80, the revised booklet clarifies and updates the OCC’s policies and processes covering the establishment, operations, and other corporate activities of federally licensed offices of foreign banks, including (i) notice and application filing requirements; (ii) decision factors and criteria; and (iii) removal of internal licensing procedures.

    Agency Rule-Making & Guidance OCC Comptroller's Licensing Manual Bank Compliance

  • California DBO reports installment consumer lending by California nonbanks increased 68 percent in 2019

    State Issues

    On September 9, the California Department of Business Oversight (CDBO) released its annual report covering the 2019 operations of finance lenders, brokers, and Property Assessed Clean Energy program administrators licensed under the California Financing Law. Key findings of the report include (i) “installment consumer lending by nonbanks in California increased more than 68 percent” from $34 billion to $57 billion, largely due to real estate-secured loans, which more than doubled to $47.3 billion; (ii) consumer loans under $2,500 accounted for 40.2 percent of the total number of consumer loans made in 2019, with unsecured loans making up 98.7 percent of these loans; and (iii) online consumer loans increased by 69.1 percent with the total principal amount of these loans increasing by 134 percent. CDBO also noted in its release that 58 percent of loans ranging from $2,500 to $4,999—the largest number of consumer loans—carried annual percent rates of 100 percent or higher. “This report reflects the final year in which there are no state caps on interest rates for loans above $2,500,” CDBO Commissioner Manual P. Alvarez stated. He further noted that “[b]eginning this year, the law now limits permissible interest rates on loans of up to $10,000. Next year’s report will reflect the [CDBO’s] efforts to oversee licensees under the new interest caps.”

    State Issues CDBO Installment Loans Nonbank Consumer Lending

Pages

Upcoming Events