Yesterday, the U.S. Supreme Court invited the Solicitor General to file a brief to express the Obama administration’s views on whether certiorari should be granted in a consumer case involving an important issue of statutory standing. In the case – Spokeo v. Robins – the issue is whether a plaintiff asserting a private cause of action under the federal Fair Credit Reporting Act has the requisite injury-in-fact for Article III standing when his complaint alleges no injury other than violation of the statutory right itself. See our prior e-alert on the Ninth Circuit’s decision in Spokeo, holding that standing did exist.
For the past few years, this issue of standing has been percolating in federal appellate courts in various consumer statutory contexts. In 2010, in Edwards v. First American Corp., the Ninth Circuit held that a plaintiff bringing a claim under RESPA possesses Article III standing to recover statutory damages even in the absence of any actual damages caused by the alleged RESPA violation. The U.S. Supreme Court initially granted certiorari in Edwards, and – upon the Court’s request – the Solicitor General and the CFPB jointly filed an amicus brief arguing that deprivation of statutory rights is all that is required for standing under RESPA. Ultimately, the Supreme Court did not address the merits of the issue in Edwards, and instead dismissed the writ as “improvidently granted.” See our prior blog posts about Edwards here and here.
Last year, in Charvat v. Mutual First Federal Credit Union, the Eighth Circuit held that the plaintiff did have standing to assert a claim under the federal Electronic Fund Transfer Act for the failure of an ATM to contain a transaction fee notice, even if the plaintiff had suffered only “informational injury” and not any economic or other injury. The Supreme Court denied certiorari in Charvat earlier this year. See our prior blog post on Charvat.
Spokeo gives the U.S. Supreme Court another opportunity to hear this significant issue of consumer statutory standing. For details on the parties’ arguments in Spokeo, see the petition for certiorari, opposition brief, and reply brief. In addition, several amicus briefs in support of granting certiorari have been filed in Spokeo, which can be found here (by Pacific Legal Foundation), here (by ACA International), here (by Trans Union LLC), here (by Chamber of Commerce of the United States of America), here (by eBay Inc., Facebook, Inc., Google, Inc. and Yahoo! Inc.), here (by Experian Information Solutions, Inc.), here (by Consumer Data Industry Association), here (by National Association of Professional Background Screeners), here (by New England Legal Foundation), and here (by DRI – The Voice of the Defense Bar). There is no deadline for the Solicitor General to file its brief. We will closely monitor the proceedings in Spokeo given its potential to impact the ability of consumers to recover under a wide array of consumer protection statutes where actual damages are often difficult to prove or non-existent.
A September 29, 2014 Report of the Joint Federal Reserve/CFPB Office of the Inspector General (OIG) concluded that the CFPB’s rulemaking process generally complies with the requirements of Section 1100G of the Dodd-Frank legislation and offered only minor criticisms identifying potential improvements. Section 1100G amended the Regulatory Flexibility Act to require the Bureau to (A) assess the impact of any proposed rule on the cost of credit for small business entities through regulatory flexibility analyses and (B) to convene panels to seek direct input from small business entities prior to issuing certain rules.
The CFPB’s Division of Research, Markets, and Regulations (RMR) created two internal guidance documents that outline the agency’s process to comply with these requirements. OIG reviewed both documents, along with some randomly selected rulemaking proceedings, to assess overall compliance with Section 1100G.
The report makes three recommendations predicated principally on the following findings:
- RMR’s interim policies and procedures have been in use for approximately two years without being updated or finalized
- Those interim policies and procedures afforded teams significant discretion in their 1100G rulemaking approach to regulatory analysis, which contributed to a variance in documentation and inconsistent knowledge transfer practices
- RMR takes an inconsistent approach with respect to storing supporting documentation related to 1100G rulemakings.
The three recommendations offered by the report are for the Bureau to:
- Finalize RMR’s interim policies and procedures;
- Establish a standard approach to manage electronic documents that facilitates retrieval of Section 1100G rulemaking supporting documentation; and
- Ensure that the standard approach complies with CFPB’s Policy for Records Management, in addition to other applicable provisions, such as the Federal Records Act, including National Archives and Records Administration regulations.
The Consumer Financial Protection Bureau recently announced a consent order with Flagstar Bank, F.S.B., alleging unfair acts and practices under the Consumer Financial Protection Act (CFPA) and violations of the CFPB’s Mortgage Servicing Rules. The penalties include $27.5 million in damages for harmed borrowers, a $10 million civil money penalty, a temporary restriction on the bank’s ability to acquire additional default loan servicing rights, and a required compliance review and plan implementation.
While this constitutes the first CFPB enforcement action for violations of the Bureau’s Mortgage Servicing Rules, the majority of the activity subject to the consent order occurred before January 10, 2014, when the rules took effect. The Bureau concluded that a variety of alleged activities constitute unfair acts and practices under the CFPA, including failure to properly evaluate loss mitigation applications, improper denial of loan modifications, and prolonging trial periods for loan modifications. Regarding activities that occurred after January 10, 2014, the CFPB alleged violations of the Mortgage Servicing Rules, namely the loss mitigation requirements under 12 C.F.R. § 1024.41. These alleged activities are generally continuations of the alleged unfair acts and practices that occurred prior to January 10, 2014. The bank did not admit any of the findings.
It is not surprising that the CFPB’s first enforcement action under the Mortgage Servicing Rules pertains to alleged loss mitigation violations. Among the rules that took effect on January 10, 2014, a failure to meet the loss mitigation requirements has the greatest potential for borrower harm. Surprisingly, the Bureau effectively enforced certain of these requirements, for violations occurring prior to the effective date, using its UDAAP enforcement authority.
It is also interesting to note the CFPB’s imposition of a provision restricting the bank’s ability to acquire additional servicing rights for default loan portfolios. Over the past six months, a variety of regulators have increasingly attempted to restrict or otherwise scrutinize servicing transfers before the transfer occurs. The Federal Housing Finance Agency has published heightened guidelines for approval of servicing transfers by the GSEs, and its Inspector General advocated even greater scrutiny for transfers to nonbank servicers. The CFPB’s recent bulletin also provides a framework for pre-transfer evaluation of a servicing transfer plan. This restriction on the bank’s acquisition of default loan servicing rights seems to be part of a growing regulatory trend for the industry.
The enforcement action should be a wake-up call to the industry that the CFPB is going to strictly enforce the Mortgage Servicing Rules and that servicers should confirm that they are in full compliance.
For more on the consent order, see our legal alert.
On October 2, 2014, the CFPB announced a research pilot to explore ways to encourage saving among consumers at tax time, with particular focus on tax-time saving practices among low-income consumers. The pilot is part of the CFPB’s “Project Catalyst,” which is designed to encourage consumer-friendly developments in markets for consumer financial products and services. See our prior blog posts about Project Catalyst here, here, here and here.
The pilot is the latest of several initiatives launched by the CFPB over the past three years to encourage consumers to save their tax refunds or a portion thereof. These initiatives are pursuant to the CFPB’s mandate to improve the financial literacy of American consumers, and in particular, its charge to provide consumers – especially low to moderate income consumers – with wealth-building strategies and access to financial services during the tax preparation process to claim certain credits and federal benefits. The CFPB has expressed its view that tax time presents an opportunity to many consumers to improve long-term financial health and economic stability by saving their tax refunds.
As part of the pilot, H&R Block, Inc. has agreed to share insights with the CFPB from H&R Block’s own tax time savings project. In its own project, H&R Block is testing the effectiveness of certain strategies to promote tax-time saving behavior, such as providing consumers with informational materials to encourage saving of tax refunds, and having tax preparers introduce to consumers the idea of saving once the consumer learns that he or she will receive a refund.
On October 15 from 3:30 to 5:30 p.m., a meeting of the CFPB’s Community Bank Advisory Council will take place at the CFPB’s offices in Washington, DC. According to the agenda Brian Webster, Program Manager for the Office of Mortgage Markets, will discuss mortgages, and Gary Stein, Deposit Markets Program Manager and Jesse Leary, Section Chief of Consumer and Household Research, will discuss overdrafts. Both topics are very much of concern to community banks. On September 29, 2014, the Bureau announced that it had entered into a consent order with Flagstar Bank regarding alleged violations of the Bureau’s new mortgage servicing regulations. Earlier this year, the Bureau issued a report about overdrafts and it is anticipated that this was a prelude to rulemaking.
This meeting will be open to the public to attend in person or over the internet. The CFPB earlier this year decided to change its prior policy under which meetings of its advisory councils were held behind closed doors.
Could the third time be the charm? Today, the U.S. Supreme Court granted the petition for certiorari filed in May 2014 by the Texas Department of Housing and Community Affairs (Texas DHCA) in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.
The case gives the Supreme Court its third opportunity since 2012 to rule on the issue of whether disparate impact claims are cognizable under the Fair Housing Act. The prior two cases, Twp. Of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc. and Magner v. Gallagher, were both settled after the completion of briefing but before the Court could hear oral argument and answer the question presented. This time around the Court granted the certiorari petition without first soliciting the views of the Solicitor General.
The Texas DHCA’s certiorari petition presented two issues: (1) whether disparate impact claims are cognizable under the FHA; and (2) if disparate impact claims are cognizable under the FHA, what standards and burdens of proof should apply. The Supreme Court’s grant of certiorari is limited to the first question. An industry favorable ruling on this question by the Supreme Court would have implications with respect to the analogous issue of whether disparate impact claims are cognizable under the Equal Credit Opportunity Act. Thus, this significant development also is of interest to non-mortgage creditors.
On October 16, 2014, Ballard Spahr attorneys will discuss this development and recent CFPB fair credit developments in a webinar, “Auto Finance II: Fair Credit,” from 12:00 p.m. to 1:00 p.m. ET. The registration form is available here.
In July 2013, the CFPB announced its plans to launch a financial coaching project in 2014 for transitioning veterans and economically vulnerable consumers. Last week, the CFPB announced that it has contracted with the Armed Forces Services Corporation (AFSC), a Service-Disabled Veteran-Owned Business, to run the project and that ASFC is looking for 20 organizations in geographically diverse locations across the country to host financial coaches. The organizations are ones that are already providing other services, including job training, education, social, and housing services, to economically vulnerable consumers. Last month, the CFPB published a notice regarding its plans for evaluating the coaching project.
The CFPB has announced that it has updated its reverse mortgage guide to reflect recent product changes. The changes concern the amount of money a borrower can draw in the first year and the ability of a non-borrowing spouse to continue to live in the home after the spouse who signed the loan passes away.
The CFPB has announced that it has entered into a consent order with a Michigan title insurance agency to settle charges that the agency violated the Real Estate Settlement Procedures Act (RESPA) by paying fees to various companies under marketing services agreements (MSA) that were based on the referrals the agency received or expected to receive from such companies. The consent order provides that the agency does not admit or deny any of the CFPB’s findings of fact or conclusions of law except to admit the facts necessary to establish the CFPB’s jurisdiction.
The consent order finds that the agency entered into the MSAs with the understanding that the counterparties (who include real estate brokers according to the CFPB’s press release) would refer mortgage closings and title insurance business to the agency. The order also finds that the agency: (1) did not determine or document how it determined a fair market value for the services it allegedly received under the MSA, (2) set the fees to be paid under the MSAs in part by considering how many referrals it had received from the counterparties and the revenue generated by the referrals and “in some cases” by considering what competing title companies would pay the same counterparties for such services, (3) did not diligently monitor its counterparties to ensure it received the services for which it contracted, and (4) received significantly more referrals from counterparties when they had MSAs with the agency than when they did not. According to the consent order, the differences are “statistically significant and are not explained by seasonal or year-to-year fluctuations.”
The consent order requires the agency to pay a civil money penalty of $200,000. It also requires the agency to terminate any existing MSAs with companies in a position to refer real estate settlement service business to the agency and prohibits the agency from entering into new MSAs with any such companies. (An agreement under which the agency is to pay a person who does not provide settlement services to place advertisements to the public is not deemed an MSA unless such person endorses the agency as part of the advertisement.)
In addition, the consent order requires the agency to document “all exchanges of things of value worth more than $5.00″ with companies in a position to refer settlement service business to it, including a description of all things of value exchanged and the reasons for the exchange. Such documentation must be maintained for five years after the exchange. The requirement to document such things of value is a new element for a CFPB RESPA consent order, and may signal an approach that the CFPB will seek to take in future RESPA Section 8 enforcement matters.
This consent order is the latest in a series of CFPB consent orders dealing with RESPA’s referral fee prohibition.
The CFPB has issued a white paper on the manufactured housing market, including how manufactured housing is financed and the types of consumers who purchase or rent such housing. In the paper’s introduction, the CFPB explains that although manufactured housing only accounts for six percent of all occupied housing and a much smaller fraction of U.S. home loan originations, such housing is of interest to the CFPB because it is a source of affordable housing particularly for rural and low income consumers and may raise consumer protection concerns due to the nature of the retail and financing markets for such housing. The report relies on publicly available data, including HMDA data, proprietary data voluntarily provided to the CFPB and information obtained through outreach to industry groups, consumer groups, government agencies and “a variety of market participants and observers.”
The paper’s key findings include:
- Compared with residents of site-built homes, a greater proportion of households living in manufactured housing live in rural areas and are headed by a retiree. In addition, such households have median incomes and net worths that are, respectively, half and one-quarter of the income and net worth of other households.
- About three-fifths of manufactured housing residents who own their own home also own the land it is sited on, with the result that such consumers generally have the option to title their home as real property and obtain financing through a mortgage loan or to title the property as personal property and obtain chattel financing.
- An estimated 65 percent of borrowers who own their own land and obtained a loan to buy a manufactured home between 2001 and 2010 financed the purchase with a chattel loan, which often have lower origination costs and close more quickly than mortgage loans but may be priced between 50 to 500 basis points higher. In addition, mortgage loans generally have more consumer protections under RESPA and various state foreclosure and repossession laws. The CFPB notes that it is an “open question” whether consumers are aware of these tradeoffs.
- Manufactured home owners typically pay higher interest rates for their loans than site-built borrowers.
The report also discusses the potential impact of certain provisions of the CFPB’s new mortgage rules on manufactured housing. More specifically, the CFPB discusses how manufactured housing might be impacted by the changes in the HOEPA thresholds and the rules on qualified mortgages/ability to repay, loan originator compensation, appraisals for certain higher-priced mortgage loans, and escrow requirements for first lien higher-priced mortgage loans.
The CFPB notes that data on manufactured housing is scarce relative to the data available on site-built housing. To help close that gap, the CFPB is considering adding a field to the HMDA data that would indicate whether a manufactured housing loan is secured by real or personal property. And, perhaps signaling the nature of its future initiatives relating to manufactured housing, the CFPB states that its findings “underscore the importance of the manufactured housing sector as a source of affordable housing for some consumers, including those outside of metropolitan areas, older households, and lower-income households. At the same time, these same groups include consumers that may be considered financially vulnerable and, thus, may particularly stand to benefit from stronger consumer protections.”