Consumer Financial Services Watch – Page 16 – News and developments related to consumer financial services, litigation, and enforcement.

Divided Supreme Court Affirms Dismissal of “Spousal Guarantor” ECOA Discrimination Lawsuit

Mar 24 2016

By Andrew C. Glass, Roger L. Smerage and Olivia Kelman

On March 22, 2016, the United States Supreme Court issued its first 4-4 split decision since the passing of Justice Antonin Scalia. In Hawkins v. Community Bank of Raymore, No. 14-520 (U.S. Mar. 22, 2016), the Court reviewed whether the Federal Reserve Board (“FRB”) exceeded its authority when it amended Regulation B, implementing the Equal Credit Opportunity Act (“ECOA”), to cover loan “guarantors” as loan “applicants.” In a per curiam opinion, the Court affirmed the determination of the United States Court of Appeals for the Eighth Circuit that (1) the plain language of ECOA excludes loan guarantors from the definition of loan applicants authorized to bring an antidiscrimination suit under the statute, and thus (2) the FRB’s conflicting amendment was not entitled to deference to be afforded to regulations that interpret silent or ambiguous statutory provisions. Yet, the Court’s even split means that Hawkins will be binding precedent only in the Eighth Circuit and not nationwide.

PREPAID ACCESS GARNERS REGULATORY ATTENTION

Mar 24 2016

By: Sean P. Mahoney

Bank regulators are paying more attention to the role of banks in the prepaid card industry as evidenced by their new guidance on the applicability of know your customer requirements and proposed regulations on record-keeping with respect to master deposit accounts for prepaid cards and other products utilizing “pass-through” deposit insurance.

Increased Scrutiny On “Auto-Defaults”— Road To Enforcement Or Impetus For Change?

Mar 16 2016

By: David E. Fialkow and Hollee M. Watson

Private student loan companies are at the center of increased scrutiny by the Consumer Financial Protection Bureau (the “CFPB”). Speaking at a recent conference, the CFPB student loan ombudsman Seth Frotman warned attendees that student loan companies are at risk of violating the law for placing borrowers in default when the co-signer of the loan dies or declares bankruptcy. See Danielle Douglas-Gabriel, Federal agency warns student loan companies about automatic defaults, The Washington Post (Mar. 8, 2016). This “auto-default” practice occurs when banks and other financial companies provide student borrowers with education loans that grant lenders or servicers the right to trigger a default upon a co-signer’s death or declaration of bankruptcy, even if the loan is paid on time.

Proactive Protection of Consumers or Premature Penalty? Consumer Financial Protection Bureau Bucks the Trend in Data Security Breach Cases

Mar 15 2016

By: R. Bruce Allensworth, Ryan M. Tosi, Lindsay S. Bishop

Data breaches and cybersecurity attacks appear to be growing in frequency. Despite the increase in the number of such attacks, plaintiffs have found it difficult to establish a legal foothold for data breach claims, as federal courts across the country have routinely dismissed data breach claims brought by private litigants where no cognizable harm has been alleged. The Consumer Financial Protection Bureau (“CFPB”), however, now appears poised to enforce regulations regarding the protection of private consumer information, including holding companies accountable — even without any data breach or misuse of private consumer information.

To read the full alert, click here.

A Guaranty Is Only As Good As The Person Who Signs It: Enforcing Commercial Lending Guaranties In Massachusetts

Mar 14 2016

By: Robert W. Sparkes, III and David A. Mawhinney

Guaranties are common practice in the commercial lending industry. Typically, the borrower is a small corporation, limited liability company, or similar entity that is thinly capitalized with few (likely encumbered) assets. Under these circumstances, the borrower’s promise to pay a debt is cold comfort to a commercial lender in the event of a default, where its only source of recovery is likely to be the collateral it holds. For this reason, commercial lenders often condition loans not only on a security interest in the borrower’s property, but also on a separate, individual guaranty agreement executed by a third party, usually the principals of the corporate borrower. Such guaranties provide another avenue through which commercial lenders may recover loan amounts and damages due to the borrower’s default.

To read the full alert, click here.

Federal Court of Appeals Holds That Fannie Mae and Freddie Mac Are Not Agents of the United States, But Open Questions Remain

Mar 14 2016

By: Amy Pritchard Williams, Roger L. Smerage

Affirming the dismissal of a qui tam lawsuit based on certifications made to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the U.S. Court of Appeals for the Ninth Circuit recently held that neither entity is an officer, employee, or agent of the United States. Therefore, demands or requests for payment made to these entities are not claims under 31 U.S.C. § 3729(b)(2)(A)(i) of the False Claims Act. United States ex rel. Adams v. Aurora Loan Services, Inc., — F.3d —-, 2016 WL 697771 (9th Cir. Feb. 22, 2016).

Sixth Circuit Finds “Prior Express Consent” in Affirming Dismissal of TCPA Class Action against Healthcare Provider’s Debt Collector

Mar 10 2016

By: Andrew C. Glass, Gregory N. Blase, Roger L. Smerage, Eric W. Lee

The Sixth Circuit (the “Court”) recently sided with a defendant-debt collector in a putative class action in which the plaintiffs claimed that the defendant’s calls to their cell phones violated the Telephone Consumer Protection Act (“TCPA”). In Baisden v. Credit Adjustments, Inc., the Court held that “prior express consent” can be “obtained and conveyed via intermediaries.” In reaching this conclusion, the Court applied binding guidance from the Federal Communications Commission (“FCC”) and followed the holding of the Eleventh Circuit in Mais v. Gulf Coast Collection Bureau, Inc.

To read the full alert, click here.

A New Cyber Regulator on the Beat: The CFPB Issues its First Cybersecurity Order and Fine

Mar 08 2016

By: Ted Kornobis

On March 2, 2016, the Consumer Financial Protection Bureau (“CFPB”) instituted its first data security enforcement action, in the form of a consent order against online payment platform Dwolla, Inc. The CFPB joins several other regulators that have recently issued statements or instituted enforcement actions in this space, including the Securities and Exchange Commission (“SEC”), Commodities Futures Trading Commission (“CFTC”), the Financial Industry Regulatory Authority (“FINRA”), the National Futures Association (“NFA”), the Department of Justice (“DOJ”), state attorneys general, and the Federal Trade Commission (“FTC”), which has been active in this area for several years.

To read the full alert, click here.

The CFPB’s TILA-RESPA Integrated Disclosures Rule

Feb 19 2016

From the January 2016 issue of The Review of Banking and Financial Services, with permission.

On October 3, 2015, the Consumer Financial Protection Bureau’s (“CFPB”) final rule integrating certain mortgage disclosures under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) went into effect. While potentially simplifying the mortgage disclosure obligations of creditors by bringing together two separate disclosure regimes, the text of the regulation, along with its Preamble and Official Interpretations (the “Commentary”), impose significant changes on the disclosures required in the residential mortgage loan origination process. Creditors have been grappling with these requirements since the regulations were finalized in November 2013, and have devoted substantial resources to updating technology, working through legal and compliance issues, testing the production of the disclosures, and training employees on the requirements of the TILA-RESPA Integrated Disclosures (“TRID”). But challenges remain, and many questions are still unanswered about how certain disclosures should be made on the forms in specific loan-level scenarios. Inevitably, themes have emerged as to the issues that continue to cause concern. After providing a brief introduction to TRID, this article highlights several of these “hot” topics that are keeping compliance officers awake at night.

Webinar: The Mortgage Lifecycle: Litigation Hotspots From Origination Through Foreclosure

Feb 16 2016

Please join a group of our seasoned Financial Institutions and Services Litigation attorneys for a webinar addressing hot litigation topics concerning residential mortgages. We will begin with loan origination, navigate through loan servicing, and end with foreclosure and loan termination. Along the way, we will touch upon litigation arising from various consumer protection statutes, as well as notable common law claims. The webinar will wrap up with our thoughts on anticipated litigation trends and time for Q&A.