Supreme Court Hears Oral Argument In Significant FDCPA Case

This month, the Supreme Court heard oral argument in a case with potential to affect companies that purchase consumer debt and then collect it for their own account. The case — Henson v. Santander Consumer USA, Inc., Supreme Court Docket No. 16-349 — centers on the Fair Debt Collection Practices Act’s distinction between “debt collectors,” which are subject to the FDCPA, and “creditors,” which are not. The specific question before the Court is whether a company that regularly attempts to collect debts it purchased after the debts fell into default is a debt collector subject to the FDCPA. Continue Reading

Banks’ Boards of Directors Face New Cybersecurity Challenges

Banks’ boards of directors must, among other things, understand the risks associated with existing and planned IT operations, monitor risk management, and work with senior bank managers on strategic technology planning. See the Federal Financial Institutions Examination Council (FFIEC) IT Examination Handbook InfoBase. Recent changes in the types of attacks perpetrated by cyber criminal groups and attackers’ increased skill levels have changed how board members should approach these cybersecurity responsibilities.

The number of ransomware attacks against businesses in the U.S. quadrupled in 2016, according to Beazley, a leading cyber insurance carrier. The FBI estimates that U.S. businesses paid more than a billion dollars to ransomware attackers in 2016. The number of such attacks is projected to increase again in 2017. Continue Reading

Recent Eleventh Circuit Decision Garners Attention for Post-Spokeo Treatment of FDCPA Claims

Last year, the Supreme Court decided Spokeo, Inc. v. Robins, 578 U.S.—, 136 S. Ct. 1540 (2016), which addressed whether the plaintiff adequately pleaded Article III standing by alleging bare violations of the Fair Credit Reporting Act, based on the publication of allegedly inaccurate consumer information. The Court held that the lower court, the Ninth Circuit, failed to address the “concreteness” component of the injury-in-fact element of standing and vacated and remanded for consideration. In its opinion, the Court offered guidance to the Ninth Circuit, noting that the injury-in-fact element comprises both particularity and concreteness components. The latter requires that the injury be “de facto”; “that is, it must actually exist.” While allegations of “a bare procedural violation, divorced from any concrete harm,” will not suffice, “the violation of a procedural right granted by statute can be sufficient,” so long as the right is tied to some “concrete interest.” Continue Reading

CFPB Proposes Amendments to Align Regulation B with Revised Regulation C

On March 24, 2017, the Consumer Financial Protection Bureau (CFPB) proposed amendments to Regulation B to “provide additional flexibility for mortgage lenders concerning the collection of consumer demographic information.”  The amendments were also necessary to resolve the current rule and timing differences between Regulation B (Equal Credit Opportunity Act (ECOA)) and Regulation C (Home Mortgage Disclosure Act (HMDA)).

Regulation B implements the ECOA, a federal civil rights law prohibiting lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, or other protected characteristics.  The CFPB’s proposal would make three substantive changes to Regulation B—along with other clarifications and technical corrections—to align Regulation B and Regulation C (as amended by the 2015 HMDA Final Rule) requirements concerning collection of consumer race and ethnicity information. Continue Reading

D.C. Circuit Agrees to Hear Controversial PHH Case En Banc

On Feb. 16, 2017, the D.C. Circuit granted the CFPB’s petition to rehear en banc the court’s landmark October 2016 decision finding that the structure of the CFPB was unconstitutional. We covered the panel decision here. In its Feb. 16, 2017, order the D.C. Circuit directed the parties to brief three specific issues:

(1)        Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?

(2)        May the court appropriately avoid deciding that constitutional question, given the panel’s ruling on the statutory issues in this case?

(3)        If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case? Continue Reading

CFPB Fines Lender and Real Estate Brokers for Improper Kickback Scheme

On Jan. 31, 2017, the Consumer Financial Protection Bureau (CFPB) filed consent orders against one of the largest independent residential mortgage lenders, two real estate brokers and a mortgage servicer for their roles in an improper “kickback” scheme involving mortgage referrals. The fines here were notable given that the CFPB targeted realtors for accepting payments from the referral arrangements.

Prospect Mortgage, a mortgage lender based in Sherman Oaks, California, was assessed a $3.5 million civil penalty for paying illegal kickbacks. ReMax Gold Coast, based in California, and Keller Williams Mid-Willamette, headquartered in Oregon, are two of the real estate brokers with which Prospect Mortgage had improper marketing service arrangements. The CFPB also took action against a Connecticut-based mortgage servicer for accepting fees from Prospect Mortgage for referring consumers seeking to refinance. Continue Reading

OCC Announces Creation of New Office to Foster the Development of Fintech in Banks

Fintech is at the forefront of the financial industry. A recent announcement by the Office of the Comptroller of the Currency (OCC) shows that this trend will only continue to grow and cements fintech as an important piece to the financial services puzzle in the future.

On Oct. 26, the OCC announced it is creating a new stand-alone office to help banks and other entities develop fintech products. The office will be called the Office of Innovation and is slated to open in the first quarter of 2017 with locations in New York, Washington, D.C., and San Francisco. Continue Reading

CFPB Warns Mortgage Lenders and Brokers of Possible HMDA Violations

On Oct. 27, 2016, the Consumer Financial Protection Bureau (CFPB) warned 44 unnamed mortgage lenders and brokers that they may be in violation of data reporting requirements of the Home Mortgage Disclosure Act (HMDA).

Enacted in 1975, HMDA requires financial institutions to collect data about housing-related lending activity – including home purchase loans, home improvement loans and home refinancing loans that they originate or purchase or for which they receive applications – and report the information to the appropriate federal agency. The data is then used by regulators, including the CFPB, and the public to monitor lending practices nationwide and identify patterns of discriminatory lending behavior. Additionally, the data is used to ensure financial institutions are serving the housing needs of their communities and attracting private investment to areas of need. Continue Reading

Federal Appellate Court Deems CFPB ‘Unconstitutionally Structured’ and Overturns PHH Penalty

gavelOn Oct. 11, the U.S. Court of Appeals for the D.C. Circuit deemed the Consumer Financial Protection Bureau (CFPB) “unconstitutionally structured” and overturned its enforcement action, including a $109 million penalty, against PHH Corp., a New Jersey-based mortgage lender. Despite its rulings, the D.C. Circuit made clear that the CFPB will continue to operate and perform its duties.

The CFPB originally fined PHH for an alleged kickback scheme whereby PHH referred customers to insurers who then purchased reinsurance from a PHH subsidiary. In seeking to vacate the enforcement order, PHH made both constitutional and statutory arguments.

Constitutional Arguments

PHH argued that the CFPB’s status as an independent agency headed by a single director violates Article II of the U.S. Constitution. To analyze this issue, the D.C. Circuit employed a “history-focused approach” focusing on separation of powers decisions from the Supreme Court.

The D.C. Circuit observed that “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decisionmaking and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” The D.C. Circuit added that the CFPB’s structure lacks critical checks and constitutional protections, despite the agency wielding vast power over the U.S. economy. Continue Reading

CFPB Finalizes New Rules Governing Prepaid Card Products

On Oct. 5, 2016, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced a final rule governing the burgeoning consumer prepaid card industry. The CFPB estimates that the amount of money consumers load onto “general purpose reloadable” prepaid cards increased from less than $1 billion in 2003 to nearly $65 billion in 2012. The scope of the new rule reaches not only traditional prepaid cards, but also mobile wallets, person-to-person payment products and other electronic accounts that store funds (e.g., PayPal). The rules will go into effect Oct. 1, 2017, creating uniform standards across the industry.

In general, the new prepaid card rules impose three requirements: First, they limit consumer losses when funds are stolen or cards are lost; second, they require institutions to investigate and resolve errors; and third, they must give consumers “easy and free access” to their account information. The CFPB also finalized “Know Before You Owe” disclosures for prepaid accounts, with short-form declarations available on the packaging of prepaid products and longer declarations available online. Continue Reading

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