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Washington AG sues collection agency over time-barred debt settlement offers
On June 25, the Washington attorney general filed a complaint against a collection agency in King County Superior Court alleging the company’s settlement offers violated the state’s Collection Agency Act (CAA) and Consumer Protection Act (CPA). The complaint alleges that the company sent over 75,000 collection letters to Washington state residents and hundreds of thousands more letters to individuals in other states that told individuals they had a fixed number of days to respond to an offer to settle time-barred debts. However, according to the complaint, because the letters failed to disclose that the debts were legally unenforceable, they “had the capacity to deceive consumers into believing they could be sued on the debts if they did not pay.” These actions, the complaint claims, constitute an unfair and/or deceptive practice under the CPA. The company also allegedly violated the CAA, which, among other things, prohibits Washington-licensed collection agencies from threatening to take actions they cannot legally take. The complaint seeks injunctive relief, civil penalties, restitution, and costs.
Online payday lender settles usury suit for $141 million
On June 26, the U.S. District Court for the Eastern District of Virginia approved a preliminary settlement to resolve putative class allegations against an online payday lending company and related entities (defendants) accused of issuing high interest loans through a “rent-a-tribe” lending operation. According to the class’s second amended complaint, the defendants’ “rent-a-tribe” operation was an “attempt to circumvent state and federal law by issuing high interest loans in the name of a Native American tribal business entity that purports to be shielded by the principle of tribal sovereign immunity.” The class—which consists of borrowers from throughout the U.S.—alleged that the defendants provided “financing and various lending functions” carrying “extortionately high interest rates for short-term loans” that were “far beyond legal limits,” and that the unlawful interest rates were not disclosed to borrowers during the application process. Additionally, the class alleged that the defendants failed to provide key loan terms or misrepresented the loan terms, including repayment schedules, finance charges, and the total amount of payments due. Under the terms of the settlement, the defendants will pay a $65 million cash payment, cancel $76 million in high-interest loans, and provide other non-monetary relief.
OCC issues new UDAP/UDAAP Comptroller’s Handbook booklet
On June 29, the OCC issued a new Comptroller’s Handbook booklet, “Unfair or Deceptive Acts or Practices and Unfair, Deceptive, or Abusive Acts or Practices,” which covers details for examiners regarding UDAP violations under Section 5 of the FTC Act and UDAAP violations under sections 1031 and 1036 of the Dodd-Frank Act. The booklet includes, among other things, examination procedures for assessing the effectiveness of a bank’s compliance management systems in identifying and managing UDAP and UDAAP risks and red flags that examiners can use to identify acts or practices that may raise UDAP or UDAAP concerns. Specifically, Appendix A includes a detailed list of nine red flags that examiners can use to identify potential areas with higher risks, including items such as (i) customer complaints received by the OCC or the bank; (ii) whistleblower referrals; (iii) higher than average fee incomes; (iv) weak servicing and collection practices; and (v) inadequate oversight over incentive compensation programs. Additionally, Appendix B includes risk indicator charts for examiners to use when assessing the quantity and quality of a bank’s risk management for UDAP and UDAAP.
FinCEN outlines BSA due diligence requirements for hemp-related businesses
On June 29, the Financial Crimes Enforcement Network (FinCEN) issued guidance for hemp-related business customers to explain due diligence requirements and identify the types of information financial institutions can collect to comply with Bank Secrecy Act (BSA) regulatory requirements. The guidance supplements a December 2019 interagency statement (covered by a Buckley Special Alert), which confirmed that financial institutions are no longer required to file a suspicious activity report (SARs) on customers solely because they are “engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.” Among other things, the guidance reiterates FinCEN’s expectation that financial institutions conduct customer due diligence (CDD) for hemp-related businesses, as they would for other customers, and establish appropriate on-going risk-based CDD procedures. This may include confirming that the hemp business is complying with applicable state, tribal government, or United States Department of Agriculture licensing requirements. Financial institutions should also tailor BSA/Anti-Money Laundering programs to appropriately reflect the risks associated with a customer’s particular risk profile and file the required reports. The guidance further provides that while financial institutions are not required to file SARs on customers solely because they are engaged in a hemp business, “financial institutions are expected to follow standard SAR procedures.” Examples of suspicious activity that may warrant the filing of a SAR are provided. Finally, the guidance states that financial institutions must report currency transactions connected to hemp-related businesses as they would for any other customer for transactions above $10,000 in aggregate on a single business day.
House approves resolution to reverse OCC’s CRA rule
On June 29, the U.S. House of Representatives approved resolution H.J. 90, along party lines, which would reverse the OCC’s final rule (covered by a Buckley Special Alert) to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, Chair of the House Financial Services Committee, Maxine Waters (D-CA) and Chair of the Subcommittee on Consumer Protection and Financial Institutions, Gregory Meeks (D-NY) introduced the resolution, with Waters criticizing the OCC’s decision to move forward with the rule “despite the Federal Reserve and the FDIC—the other regulatory agencies responsible for enforcing CRA—declining to join in the rulemaking.” While the resolution is unlikely to pass the Senate, the White House released a Statement of Administration Policy, which opposes the resolution and states that the President’s advisors will recommend he veto the action.
CFPB announces e-disclosures and HMDA platform Tech Sprints
On June 29, the CFPB announced two Tech Sprints that will “bring together regulators, technologists, software providers, consumer groups, and financial institutions to develop technological solutions to shared compliance challenges.” As previously covered by InfoBytes, the CFPB announced, in September 2019, its intention to use Tech Sprints—which had been used by the U.K.’s Financial Conduct Authority seven times since 2016 and resulted in a pilot project on digital regulatory reporting—to encourage regulatory innovation and requested comments from stakeholders on the plan.
- E-Disclosures, October 5-9, 2020. This Tech Sprint will have participants “improve upon existing consumer disclosures” by “design[ing] innovative electronic methods for informing consumers about adverse credit actions, including from the use of algorithms.” The Bureau notes that many disclosure laws “were written in a paper-based age” and using digital technology for disclosures may “enable greater consumer engagement and understanding.”
- HMDA platform and submission, March 22-26, 2021. This Tech Sprint will encourage participants to “develop new tools to address compliance challenges and improve the filing process” on the HMDA platform (operated by the Bureau on behalf of the Federal Financial Institutions Examination Council). Additionally, participants “may work to further develop the HMDA Platform’s Application Programming Interfaces to increase efficiency and lower cost.”
Separately, the FDIC also announced the start of a prototyping competition intended “to help develop a new and innovative approach to financial reporting, particularly for community banks.” The competition will involve 20 technology firms from across the country that will propose solutions for the FDIC’s consideration to make financial reporting “seamless and less burdensome for banks.”
9th Circuit: Judicial foreclosure not debt collection under FDCPA
On June 30, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of an FDCPA action, concluding that the FDCPA does not apply when a creditor is enforcing a security interest through a foreclosure, but is not seeking a deficiency judgment. According to the opinion, the plaintiff filed an action against Fannie Mae, Fannie Mae’s loan servicer, the law firm that represented Fannie Mae in the foreclosure proceeding, and the firm’s attorneys (collectively, “defendants”) for, among other things, violating the FDCPA when seeking to foreclose on his residential property. The district court dismissed the action, concluding that the FDCPA did not apply because the defendants had not engaged in any debt collection behavior by initiating the judicial foreclosure. In 2018, the 9th Circuit affirmed the dismissal, but subsequently ordered a supplemental briefing based on the U.S. Supreme Court’s intervening decision in Obduskey v. McCarthy & Holthus LLP (which held that law firms performing nonjudicial foreclosures are not “debt collectors” under the FDCPA, covered by InfoBytes here).
After the supplemental briefing, the appellate court affirmed the district court’s dismissal of the action. The appellate court rejected the plaintiff’s argument that the letter sent by the defendants when initiating the judicial foreclosure, which included monetary amounts owed, amounted to debt collection activity under the FDCPA. The appellate court noted that the defendants were merely fulfilling a procedural requirement (that has since been amended) of Oregon foreclosure law, and “in no event would a money award have been enforceable against [the plaintiff],” because of Oregon’s anti-deficiency judgment law. Thus, the appellate court concluded that a judicial foreclosure is not considered a debt collection activity when it does not “include a request for a deficiency judgment or some other effort to recover the remaining debt,” and therefore, the district court properly dismissed the action.
CFPB releases spring 2020 rulemaking agenda
On June 30, the CFPB released its spring 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between May 1, 2020 and April 30, 2021. The announcement notes that the agenda was set before the Covid-19 pandemic struck and while the Bureau “continues to move forward with other regulatory work,” it will prioritize work related to supporting consumers and the financial sector during and after the Covid-19 pandemic.
In addition to the rulemaking activities already completed by the Bureau in May and June of this year, the agenda highlights other regulatory activities planned, including:
- Escrow Rulemaking. The Bureau intends to issue a proposed rule to implement Section 108 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which directs the Bureau to exempt certain loans made by creditors with assets of $10 billion or less (and that meet other criteria) from the escrow requirements applicable to higher-priced mortgage loans.
- Small Business Rulemaking. The Bureau states that in September 2020, it will publicly release materials for an October panel (convening under the Small Business Regulatory Enforcement Fairness Act) with small entities likely to be directly affected by the Bureau’s rule to implement Section 1071 of Dodd-Frank.
- HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.
- Debt Collection. The Bureau intends to release the final rule amending Regulation F to implement the Fair Debt Collection Practices Act in October 2020 (InfoBytes coverage of the May 2019 proposed rule here). Additionally, “at a later date” the Bureau intends to finalize the February supplemental proposal, which covers time-barred debt disclosures (covered by a Buckley Special Alert here).
- Qualified Mortgages (QM). The Bureau states it is considering issuing a proposed rule “later this year” that would create a new “seasoning” definition of a QM under Regulation Z, allowing for QM status after the borrower has made consistent timely payments for a defined period.
Additionally, in its announcement, the Bureau notes that it is (i) participating in an interagency rulemaking process on quality control standards for automated valuation models (AVMs) with regard to appraisals; and (ii) continuing to review and conduct the five-year lookback assessments under Section 1022(d) of Dodd-Frank.
FCC narrows “autodialer” definition
On June 25, the FCC narrowed the Commission’s definition of an “autodialer,” providing that “if a calling platform is not capable of originating a call or sending a text without a person actively and affirmatively manually dialing each one, that platform is not an autodialer and calls or texts made using it are not subject to the TCPA’s restrictions on calls and texts to wireless phones.” The FCC reiterated that only sequential number generators or other systems that can store or produce numbers to be called or texted at random are the only technologies considered to be autodialers. The FCC further noted that whether a system can make a large number of calls in a short period of time does not factor into whether the system is considered an autodialer, and that message senders may avoid TCPA liability by obtaining prior express consent from recipients. The FCC issued the ruling in response to an alliance’s 2018 petition, which asked the FCC to clarify whether the definition of an autodialer applied to peer-to-peer messaging (P2P) platforms that, among other things, allow organizations to text a large number of individuals and require a person to manually send each text message one at a time. The FCC declined to rule on whether any particular P2P text platform is an autodialer due to the lack of sufficient factual basis.
The FCC issued a separate declaratory ruling the same day reiterating that the TCPA requires autodialer or robocall senders to obtain prior express consent before making any texts or robocalls, stressing that the “mere existence of a caller-consumer relationship does not satisfy the prior-express-consent requirement for calls to wireless numbers, nor does it create an exception to this requirement.” The ruling was issued in response to a health benefit company’s 2015 petition, which asked the FCC to exempt health plans and providers, as well as certain non-emergency, urgent health care-related calls, from the prior consent requirement as long as the company permitted consumers to opt out after the fact.
As previously covered by InfoBytes, several appellate courts have issued conflicting decisions with respect to the definition of an autodialer.
ARRC releases updated fallback language in the event of LIBOR transition
On June 30, the Alternative Reference Rates Committee (ARRC) released updated recommended fallback language for U.S. dollar LIBOR denominated syndicated loans and new variable rate private student loans. ARRC noted that the private student loan language is intended to minimize risk and market disruption in the event of LIBOR’s anticipated cessation at the end of 2021. ARRC also released conventions for how market participants can voluntarily use the Secured Overnight Financing Rate (SOFR) in new student loan products. With respect to syndicated loans, ARRC noted that the updated fallback language recommends “the use of simple daily SOFR in arrears,” which, among other things, includes “a more permissive early opt-in trigger” to “allow parties involved in the loan to switch over to an alternative rate like SOFR before LIBOR is officially discontinued or determined to be unrepresentative.” Additionally, ARRC announced new details regarding its recommendation of spread adjustments for cash products that reference LIBOR. Market participants may voluntarily use ARRC’s recommended methodology to produce spread adjustments “where a spread-adjusted [SOFR] can be selected as a fallback.”