Litigation & Enforcement Actions – Page 10 – Consumer Financial Services Watch

You Had Me at “Hello” Letter: Second Circuit Concludes That a RESPA Transfer-of-Servicing Letter Can Be a Communication in Connection with Collection of Debt

Sep 22 2015

By: Brian M. Forbes, Gregory N. Blase, Roger L. Smerage, Edward J. Mikolinski

Sometimes it is just not that easy to say “hello.” A recent decision from the United States Court of Appeals for the Second Circuit highlights the uncertainty mortgage servicers face with respect to Fair Debt Collection Practices Act (“FDCPA”) compliance when notifying borrowers of changes in loan servicing rights, as required by the Real Estate Settlement Procedures Act (“RESPA”). Often the first communication from a new servicer to a borrower is a RESPA transfer-of-servicing letter—sometimes referred to as a “hello” letter. Under the FDCPA, however, a debt collector—which can include a mortgage servicer when the loan serviced was in default at the time servicing rights were acquired—must provide a debt-validation notice within five days of the “initial communication with a consumer in connection with the collection of [a] debt.” See 15 U.S.C. § 1692g(a). Given the multiple regulatory obligations applicable to communications with borrowers, it is no surprise that litigation often ensues (often in the form of class action litigation for statutory damages), and courts struggle to make sense of the various (and sometimes competing) obligations imposed by the FDCPA and RESPA.

In Win for CFPB, Federal Court Clarifies Scope of “Substantial Assistance” and “Service Provider” Provisions of Dodd-Frank Act

Sep 08 2015

In the first court decision to opine on the “service provider” and “substantial assistance” provisions of the Dodd-Frank Act, a federal district court in Georgia denied a motion to dismiss brought by payments processors who had been sued by the Consumer Financial Protection Bureau (“CFPB”) for their role in an alleged phantom debt collection scheme. The decision addresses two novel areas of the CFPB’s jurisdiction – its ability to enforce the prohibition against unfair, deceptive, and abusive acts and practices (“UDAAPs”) against “service providers,” and its ability to go after those individuals and entities that “knowingly or recklessly provide substantial assistance” to the commission of a UDAAP. While grounded in the specific facts pled in the CFPB’s detailed complaint, the opinion nevertheless provides insight into how the federal courts may interpret these provisions, and serves as a warning sign to companies about the importance of implementing robust compliance programs.

Some Lessons from the CFPB’s Springstone Enforcement Action

Aug 25 2015

Last week, the Consumer Financial Protection Bureau (CFPB) announced a settlement with Springstone Financial, LLC, for deceptive practices related to enrolling consumers in deferred-interest credit products. Springstone administered a health-financing program through which consumers could finance various medical treatments, including dental treatments. Consumers could apply for credit either through Springstone’s website or at their medical provider’s office. In the case of the latter, the health care providers’ staff — who were trained and monitored by Springstone — would provide consumers with application materials and assist them in filling out the application before submitting it to Springstone on consumers’ behalf. The CFPB’s claim centered on these providers. “In some cases,” according to the CFPB, dental staff allegedly told consumers that the deferred-interest product was a no-interest loan and failed to mention that a 22.98 percent interest rate would apply from the date of the loan if the loan balance was not paid in full by the end of the promotional period. The CFPB found these practices deceptive and determined that more than 3,200 consumers “may have been” affected by them. As a result, Springstone was ordered to provide $700,000 in restitution to the 3,200 consumers who ended up paying deferred interest on a loan they applied for with a health-care provider’s assistance. The CFPB did not assess a civil money penalty.

Federal District Court Upholds CFPB Claims Against Debt Collection Law Firm But Rejects Open-Ended Statute of Limitations Arguments

Jul 17 2015

On July 14, 2015, the U.S. District Court for the Northern District of Georgia denied defendants’ motion to dismiss the Consumer Financial Protection Bureau’s (CFPB) claims in CFPB v. Frederick J. Hanna & Associates. The CFPB’s complaint in this case alleges that the defendants, a law firm and its principals, operate “less like a law firm than a factory” that files tens of thousands of collection cases each year. The complaint alleges that the defendants filed over 350,000 collection suits each year, but that attorneys spend less than a minute reviewing and approving each suit. The CFPB’s complaint alleges that the lack of attorney involvement constitutes a violation of the Fair Debt Collection Practices Act’s (FDCPA) and the Consumer Financial Protection Act’s (CFPA) prohibitions on deceptive practices because the collections actions filed by the defendants represented to consumers that attorneys were meaningfully involved in filing those actions when in fact they were not. The CFPB’s complaint also alleges that the defendants’ use of affidavits in which affiants represented they had personal knowledge of the validity and ownership of the debts violated these same statutes.

New CFPB/DOJ Enforcement Action Incentivizes Indirect Auto Lenders to Limit Discretionary Dealer Markups

Jul 16 2015

On July 14, 2015, the Consumer Financial Protection Bureau (“CFPB”) and the U.S. Department of Justice (DOJ) announced a joint settlement of allegations that American Honda Finance Corporation (“Honda”), an indirect auto lender associated with the car manufacturer of the same name, violated the federal Equal Credit Opportunity Act by discriminating against African-American, Hispanic, and Asian and Pacific Islander borrowers in the pricing of auto loans. Notably, the terms of the CFPB’s consent order may indicate how indirect auto lenders in the future can avoid the most onerous financial penalties associated with allegedly unlawful pricing practices.

Are Public Companies Required to Disclose that the Government is Investigating Them?

Jul 13 2015

By: Jon Eisenberg

For many public companies, the first issue they have to confront after they receive a government subpoena or Civil Investigative Demand (“CID”) is whether to disclose publicly that they are under investigation. Curiously, the standards for disclosure of investigations are more muddled than one would expect. As a result, disclosure practices vary—investigations are sometimes disclosed upon receipt of a subpoena or CID, sometimes when the staff advises a company that it has tentatively decided to recommend an enforcement action, sometimes not until the end of the process, and sometimes at other intermediate stages along the way. In many cases, differences in the timing of disclosure may reflect different approaches to disclosure. We discuss below the standards that govern the disclosure decision and practical considerations. We then provide five representative examples of language that companies used when they disclosed investigations at an early stage.

To read the full alert, click here.

Connecticut Mandates Identity Theft Services for SSN Data Breaches

Jul 07 2015

By: Holly K. Towle

On June 30, 2015, Connecticut’s governor signed into law an amendment to the state’s data-security-breach-notice statute to mandate “appropriate” identity theft prevention services for breaches involving social security numbers. Identity theft mitigation services are also required “if applicable” (e.g., if identify theft actually occurs). The services must be provided at no cost and for at least 12 months. The statute does not explain which identity theft “prevention” or “mitigation” services are mandated or which are “appropriate.”

Advisory Rules Committee Adopts Amendments to Bankruptcy Rule 3002.1

Jul 06 2015

By: Phoebe S. Winder, Ryan M. Tosi, Mary L. Thibadeau

Recently, the Advisory Committee on Bankruptcy Rules voted unanimously in favor of adopting the proposed changes to Bankruptcy Rule 3002.1 as originally published August 2014 and as discussed in our alert entitled “Have You Noticed Your Payment Change? Advisory Rules Committee Proposes Amendments to Bankruptcy Rule 3002.1” (available here). The Advisory Committee now seeks the Standing Committee’s final approval of the amended rule.

Although the rule amendments unfortunately do not address the difficulties surrounding the filing of timely and accurate payment change notices for home equity lines of credit or daily simple interest accounts, the report notes that the rule’s applicability to these accounts was discussed, and that “publication of a proposed amendment to address that issue will be sought later as part of a larger package of related amendments.” Thus, while it appears that the Committee is open to the idea of further amending Rule 3002.1 to address home equity lines of credit and daily simple interest accounts, the amendments will not be made in the near term.

The rule changes adopted by the Advisory Committee are not anticipated to go into effect until December 1, 2016; however, certain new “modernized” forms, including the proof of claim form and mortgage attachment, payment change notice form, and post-petition fee notice form, are scheduled to go into effect on December 1, 2015, pending approval by the Judicial Conference. K&L Gates will continue to monitor the proposed changes to the rule and will report on significant developments.

6 Critical Issues When Responding to Government Subpoenas

Jun 30 2015

By: Shanda Hastings, Noam Kutler

Partner Shanda Hastings and Associate Noam Kutler, members of the K&L Gates Government Enforcement group, co-authored the article titled “6 Critical Issues When Responding to Government Subpoenas” appearing in the June 16 edition of Corporate Counsel magazine. In their article, they discuss six critical issues that could cause significant problems for a bank or financial institution if overlooked when responding to a government subpoena for documents.

To read the full article, click here.

Sixth Circuit Limits Scope of “Unsolicited Advertisement” under the TCPA

Jun 26 2015

By: Joseph C. Wylie II, Molly K. McGinley, Nicole C. Mueller

The Sixth Circuit recently held that a facsimile which lacks commercial components on its face does not constitute an advertisement under the Telephone Consumer Protection Act and ruled that the possibility of remote economic benefit to a defendant is “legally irrelevant” to determining whether the fax violates the TCPA. The Sixth Circuit’s narrow rule stands out among decisions from other courts that have adopted an expansive interpretation of “advertisement” under the TCPA, and demonstrates that the scope of the TCPA is indeed subject to limitations.

Catagory:Litigation & Enforcement Actions