By Katalina M. Bianco, J.D.
Selling “zombie” debts, robo-signing court documents, and failing to accord proper protections to servicemembers are among the consumer debt collection violations committed by various JPMorgan Chase companies, according to the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, and 48 attorneys general. Three banks and one credit card servicing company agreed to pay at least $216 million in consumer refunds and civil penalties, in addition to at least $50 million in refunds the OCC says already have been paid.
Aa part of the settlement agreement, Chase agreed to stop all collection efforts on 528,000 consumer accounts. According to the CFPB, these accounts had a face value of several billion dollars when Chase sent them to debt collectors, and “The actual market value is now estimated in the tens or hundreds of millions of dollars.”
Separate consent orders were entered by the two agencies to resolve the related actions. The CFPB’s enforcement action also settled charges by 47 states and the District of Columbia. Chase agreed to the orders but did not admit to any wrongdoing.
Bureau action. The CFPB’s investigation focused on credit card accounts that went into default between 2009 and 2013. According to the bureau, Chase sold some of these accounts to third-party debt collectors, providing account information using electronic files. When necessary, Chase employees also signed affidavits for use in collection suits.
The bureau charged that the electronic files included: accounts with unlawfully obtained judgments, accounts with inaccurate balances, accounts that had been paid off, accounts that had been discharged in bankruptcy, accounts that had been opened fraudulently, accounts that already were subject to payment plans, accounts that Chase had previously sold, and accounts that were owed by deceased consumers. Since Chase knew the debt collectors would rely on the information, it assisted them in deceptive collection activities, the CFPB said.
The 528,000 accounts that Chase may no longer attempt to collect include those over which collection suits were filed. The companies provided the debt collectors with more than 150,000 affidavits for use in these suits, and in the process it “systematically failed to prepare, review, and execute truthful statements as required by law,” according to the CFPB.
CFPB action remedies. Under the CFPB consent order, Chase agrees to halt collection efforts on the 528,000 accounts, notify consumers it will not attempt to enforce court judgments, and take steps to prevent inclusion of the accounts in consumer reports. Chase will pay a minumum of $50 million in consumer redress, including a 25-percent penalty to consumers who paid more than they owed plus a $30 million civil money penalty.
OCC action. The OCC’s consent order resulted from a 2013 settlement of charges related to debt collection litigation practices, including robo-signing documents, and violations of the Servicemembers Civil Relief Act. In that settlement, Chase agreed to take described remedial action, and the OCC deferred the entry of any civil penalty. While Chase has since repaid more than $50 million to consumers, the OCC determined that “the full extent of the deficiencies” called for an additional $30 million penalty.
For more information about the Chase enforcement actions, subscribe to the Banking and Finance Law Daily.
Thursday, July 9, 2015
Wednesday, July 8, 2015
GAO greenlights TRID rule
By John M. Pachkowski, J.D.
The Government Accountability Office (GAO) has released its assessment of Consumer Financial Protection Bureau’s compliance with the procedural steps required by Congressional Review Act (CRA) regarding the CFPB’s 2013 final rule that integrated various mortgage disclosures required by the Real Estate Settlement Procedures Act and the Truth in Lending Act.
Although the final rule, commonly referred to as the TRID rule, was formally published at the end of 2013 and was to become effective on Aug. 1, 2015, many industry stakeholders and members of Congress pressed the bureau to delay the effective date or provide a safe harbor for compliance.
Bowing to pressure, the CFPB initially announced that in a letter to Sens. Joe Donnelly (D-Ind) and Tim Scott (R-SC) stating that the bureau’s oversight of the TRID implementation “will be sensitive to the progress made by those entities that have been squarely focused on making good-faith efforts to come into compliance with the rule on time.”
Following its “sensitive to the progress made” position, the CFPB issued a proposed amendment that would delay the effective date of the TRID rule until Oct. 3, 2015. The bureau noted that it was taking this action due to an administrative error on its part in complying with the CRA.
In its assessment, which was sent to the leadership of the Senate Banking and House Financial Services Committees, the GAO noted that since the CFPB’s CRA review was not received until June 16, 2015, the required 60-day delay in the effective date of a major rule was not met. Despite that failure, the GAO found the other procedural steps required by the CRA were met.
Specifically, the GAO’s assessment found the CFPB adequately discussed costs and benefits of the TRID rule. In addition, the bureau took other actions that satisfied: the requirements of the Regulatory Flexibility Act; the notice and comment requirements of the Administrative Procedures Act; and the cost estimates for information collection requirements under Paperwork Reduction Act.
For more information about TILA and RESPA, subscribe to the Banking and Finance Law Daily.
The Government Accountability Office (GAO) has released its assessment of Consumer Financial Protection Bureau’s compliance with the procedural steps required by Congressional Review Act (CRA) regarding the CFPB’s 2013 final rule that integrated various mortgage disclosures required by the Real Estate Settlement Procedures Act and the Truth in Lending Act.
Although the final rule, commonly referred to as the TRID rule, was formally published at the end of 2013 and was to become effective on Aug. 1, 2015, many industry stakeholders and members of Congress pressed the bureau to delay the effective date or provide a safe harbor for compliance.
Bowing to pressure, the CFPB initially announced that in a letter to Sens. Joe Donnelly (D-Ind) and Tim Scott (R-SC) stating that the bureau’s oversight of the TRID implementation “will be sensitive to the progress made by those entities that have been squarely focused on making good-faith efforts to come into compliance with the rule on time.”
Following its “sensitive to the progress made” position, the CFPB issued a proposed amendment that would delay the effective date of the TRID rule until Oct. 3, 2015. The bureau noted that it was taking this action due to an administrative error on its part in complying with the CRA.
In its assessment, which was sent to the leadership of the Senate Banking and House Financial Services Committees, the GAO noted that since the CFPB’s CRA review was not received until June 16, 2015, the required 60-day delay in the effective date of a major rule was not met. Despite that failure, the GAO found the other procedural steps required by the CRA were met.
Specifically, the GAO’s assessment found the CFPB adequately discussed costs and benefits of the TRID rule. In addition, the bureau took other actions that satisfied: the requirements of the Regulatory Flexibility Act; the notice and comment requirements of the Administrative Procedures Act; and the cost estimates for information collection requirements under Paperwork Reduction Act.
For more information about TILA and RESPA, subscribe to the Banking and Finance Law Daily.
Tuesday, July 7, 2015
U.S.: Disparate-Impact and the Fair Housing Act—what does it mean?
By James T. Bork, J.D., LL.M.
On June 25, 2015, the Supreme Court upheld the application of disparate-impact under the Fair Housing Act (FHA) in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. But the decision also described limitations on its application.
This case marks the third time the disparate-impact/FHA issue has reached the Supreme Court. In early 2012, the parties to Magner v. Gallagher agreed to have their case dismissed two weeks prior to oral argument before the Justices. The key issue there was whether the FHA made it illegal for local governments to enforce housing codes in a way that had a negative impact on minorities, even though enforcement was not motivated by intentional bias. In late 2013, the parties to Township of Mount Holly v. Mount Holly Gardens Citizens settled that case three weeks before it was to be argued. The issue in this second case was whether the FHA prohibits official housing policies that are not the result of intentional bias, but which nonetheless have a negative impact on racial minorities and/or others protected by the law.
In the instant case, a Texas-based nonprofit corporation, assisting low-income families in obtaining affordable housing, brought FHA disparate-impact claims against the Texas Department of Housing and Community Affairs. The non-profit group alleged that the department “caused continued segregated housing patterns by its disproportionate allocation” of federal tax credits for housing, “granting too many credits for housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods.” Accordingly, the non-profit maintained that the department was required to “modify its selection criteria in order to encourage the construction of low-income housing in suburban communities.” Writing for the majority, Justice Kennedy stated that a plaintiff who brings a disparate-impact claim essentially "challenges practices that have a disproportionately adverse effect on minorities" and "are otherwise unjustified by a legitimate rationale.”
No impact on issues apart from FHA. It is important to note that the focus of the Court's decision is limited to an interpretation of the FHA, and in no way affects an insured institution's obligations with respect to the Equal Credit Opportunity Act, Regulation B—Equal Credit Opportunity (12 CFR Part 1002), and lending discrimination issues. It does not require the alteration or adjustment of any fair lending policies or standards that financial institution lenders currently observe.
ECOA and Regulation B. Disparate-impact analysis, in the form of the "effects test," has been part of creditors' Equal Credit Opportunity compliance obligations since at least as long ago as the Federal Reserve Board's most recent full revision of Regulation B in 2003. (See 68 FR 13144, March 18, 2003) The current relevant text of the Consumer Financial Protection Bureau's version of the regulation is identical to the Fed's. In particular, §1002.6(a) states that "The legislative history of the [Equal Credit Opportunity] Act indicates that the Congress intended an 'effects test' concept, as outlined in the employment field by the Supreme Court in the cases of Griggs v. Duke Power Co. and Albemarle Paper Co. v. Moody to be applicable to a creditor's determination of creditworthiness." (citations omitted)
Even though it is well understood that the effects test is synonymous with disparate-impact, the Commentary to Regulation B spells it out. "Congressional intent that this doctrine [i.e., the effects test] apply to the credit area is documented in the Senate Report … and in the House Report … . The Act and regulation may prohibit a creditor practice that is discriminatory in effect because it has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. … " (Commentary to §1002.6(a)-2)
The regulators' guidance for their respective examiners leaves no doubt that a finding of disparate-impact can be the basis of an ECOA or FHA violation. As stated in the Fed's Consumer Compliance Handbook, the Federal Deposit Insurance Corporation's Compliance Examination Manual, and the CFPB's Supervision and Examination Manual, "… evidence of discriminatory intent is not necessary to establish that a lender's adoption or implementation of a policy or practice that has a disparate-impact is in violation of the [FHA] or ECOA."
Interagency policy statements. Regulatory guidance during the past 20+ years has recognized that disparate-impact theory is a legitimate element of fair lending analysis. The 1994 Interagency Policy Statement on Discrimination in Lending from eight federal agencies recognizes that "Policies and practices that are neutral on their face and that are applied equally may still, on a prohibited basis, disproportionately and adversely affect a person's access to credit."
A basic premise of the federal regulators' 2013 Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule rests on the fact that disparate-impact analysis is a settled issue in the context of fair lending. The 2013 guidance sheds light on the question of whether a lender that originates only Qualified Mortgages might be liable under the disparate-impact doctrine for violations of the ECOA and Regulation B.
As readers will recall, the regulators determined that a financial institution's decision to offer only mortgage loans that meet the criteria for Qualified Mortgages under the CFPB's Ability-to-Repay rule should not, by itself, constitute a fair lending violation under the disparate-impact, or effects test, doctrine. But aside from the specifics of that issue, it is important to note that the 2013 Interagency Guidance affirms the continued validity of the 1994 Interagency Policy Statement, including its remarks on the disparate-impact doctrine. (See also CFPB Bulletin 2012-4: "… the CFPB reaffirms that the legal doctrine of disparate-impact remains applicable as the Bureau exercises its supervision and enforcement authority to enforce compliance with the ECOA and Regulation B.")
Summary of analysis. The foregoing analysis shows that banks' compliance obligations regarding disparate-impact theory flow primarily from sources that are separate from the Fair Housing Act and which are not affected by the Court's decision. Those obligations remain firmly in place, and would have remained in place even if the Court's dissenters had prevailed.
HUD regulation. Disparate-impact analysis under the FHA is supported by the Department of Housing and Urban Development's regulation codified at 24 CFR Part 100–Discriminatory Conduct Under the Fair Housing Act. Subpart G of the regulation, added by an amendment published at 78 FR 11459 (Feb. 15, 2013), codifies the disparate-impact theory that is (according to the final rule analysis published in the Federal Register) recognized by all the federal financial regulatory and enforcement agencies, as well as every federal appellate court that had ruled on the issue. That section states that "A practice has a discriminatory effect where it actually or predictably results in a disparate-impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin." (24 CFR §100.500(a))
On June 25, 2015, the Supreme Court upheld the application of disparate-impact under the Fair Housing Act (FHA) in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. But the decision also described limitations on its application.
This case marks the third time the disparate-impact/FHA issue has reached the Supreme Court. In early 2012, the parties to Magner v. Gallagher agreed to have their case dismissed two weeks prior to oral argument before the Justices. The key issue there was whether the FHA made it illegal for local governments to enforce housing codes in a way that had a negative impact on minorities, even though enforcement was not motivated by intentional bias. In late 2013, the parties to Township of Mount Holly v. Mount Holly Gardens Citizens settled that case three weeks before it was to be argued. The issue in this second case was whether the FHA prohibits official housing policies that are not the result of intentional bias, but which nonetheless have a negative impact on racial minorities and/or others protected by the law.
In the instant case, a Texas-based nonprofit corporation, assisting low-income families in obtaining affordable housing, brought FHA disparate-impact claims against the Texas Department of Housing and Community Affairs. The non-profit group alleged that the department “caused continued segregated housing patterns by its disproportionate allocation” of federal tax credits for housing, “granting too many credits for housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods.” Accordingly, the non-profit maintained that the department was required to “modify its selection criteria in order to encourage the construction of low-income housing in suburban communities.” Writing for the majority, Justice Kennedy stated that a plaintiff who brings a disparate-impact claim essentially "challenges practices that have a disproportionately adverse effect on minorities" and "are otherwise unjustified by a legitimate rationale.”
No impact on issues apart from FHA. It is important to note that the focus of the Court's decision is limited to an interpretation of the FHA, and in no way affects an insured institution's obligations with respect to the Equal Credit Opportunity Act, Regulation B—Equal Credit Opportunity (12 CFR Part 1002), and lending discrimination issues. It does not require the alteration or adjustment of any fair lending policies or standards that financial institution lenders currently observe.
ECOA and Regulation B. Disparate-impact analysis, in the form of the "effects test," has been part of creditors' Equal Credit Opportunity compliance obligations since at least as long ago as the Federal Reserve Board's most recent full revision of Regulation B in 2003. (See 68 FR 13144, March 18, 2003) The current relevant text of the Consumer Financial Protection Bureau's version of the regulation is identical to the Fed's. In particular, §1002.6(a) states that "The legislative history of the [Equal Credit Opportunity] Act indicates that the Congress intended an 'effects test' concept, as outlined in the employment field by the Supreme Court in the cases of Griggs v. Duke Power Co. and Albemarle Paper Co. v. Moody to be applicable to a creditor's determination of creditworthiness." (citations omitted)
Even though it is well understood that the effects test is synonymous with disparate-impact, the Commentary to Regulation B spells it out. "Congressional intent that this doctrine [i.e., the effects test] apply to the credit area is documented in the Senate Report … and in the House Report … . The Act and regulation may prohibit a creditor practice that is discriminatory in effect because it has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. … " (Commentary to §1002.6(a)-2)
The regulators' guidance for their respective examiners leaves no doubt that a finding of disparate-impact can be the basis of an ECOA or FHA violation. As stated in the Fed's Consumer Compliance Handbook, the Federal Deposit Insurance Corporation's Compliance Examination Manual, and the CFPB's Supervision and Examination Manual, "… evidence of discriminatory intent is not necessary to establish that a lender's adoption or implementation of a policy or practice that has a disparate-impact is in violation of the [FHA] or ECOA."
Interagency policy statements. Regulatory guidance during the past 20+ years has recognized that disparate-impact theory is a legitimate element of fair lending analysis. The 1994 Interagency Policy Statement on Discrimination in Lending from eight federal agencies recognizes that "Policies and practices that are neutral on their face and that are applied equally may still, on a prohibited basis, disproportionately and adversely affect a person's access to credit."
A basic premise of the federal regulators' 2013 Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule rests on the fact that disparate-impact analysis is a settled issue in the context of fair lending. The 2013 guidance sheds light on the question of whether a lender that originates only Qualified Mortgages might be liable under the disparate-impact doctrine for violations of the ECOA and Regulation B.
As readers will recall, the regulators determined that a financial institution's decision to offer only mortgage loans that meet the criteria for Qualified Mortgages under the CFPB's Ability-to-Repay rule should not, by itself, constitute a fair lending violation under the disparate-impact, or effects test, doctrine. But aside from the specifics of that issue, it is important to note that the 2013 Interagency Guidance affirms the continued validity of the 1994 Interagency Policy Statement, including its remarks on the disparate-impact doctrine. (See also CFPB Bulletin 2012-4: "… the CFPB reaffirms that the legal doctrine of disparate-impact remains applicable as the Bureau exercises its supervision and enforcement authority to enforce compliance with the ECOA and Regulation B.")
Summary of analysis. The foregoing analysis shows that banks' compliance obligations regarding disparate-impact theory flow primarily from sources that are separate from the Fair Housing Act and which are not affected by the Court's decision. Those obligations remain firmly in place, and would have remained in place even if the Court's dissenters had prevailed.
HUD regulation. Disparate-impact analysis under the FHA is supported by the Department of Housing and Urban Development's regulation codified at 24 CFR Part 100–Discriminatory Conduct Under the Fair Housing Act. Subpart G of the regulation, added by an amendment published at 78 FR 11459 (Feb. 15, 2013), codifies the disparate-impact theory that is (according to the final rule analysis published in the Federal Register) recognized by all the federal financial regulatory and enforcement agencies, as well as every federal appellate court that had ruled on the issue. That section states that "A practice has a discriminatory effect where it actually or predictably results in a disparate-impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin." (24 CFR §100.500(a))
James T. Bork, J.D., LL.M., is a Senior Banking Compliance Analyst with Wolters Kluwer Financial Services. Prior to joining WKFS, he practiced law for several years with a focus on financial institutions, consumer banking issues, commercial lending, and business law. He was also Assistant General Counsel and Senior Compliance Attorney at a billion dollar institution. Jim has written articles and spoken on regulatory and compliance developments affecting financial institutions. He received his law degree in 1989 and earned a Master of Laws degree (LL.M.) in banking law in 1993 from the Morin Center for Banking and Financial Law at Boston University School of Law.
This article previously appeared in the Banking and Finance Law Daily.
Saturday, July 4, 2015
GSE pay hikes raise legislator ire over ‘crony capitalist empire’
By Katalina M. Bianco
The recent jump in compensation for Fannie Mae and Freddie Mac chief executives has spurred a bipartisan backlash from outraged members of both the Senate and House. The CEOs of the government sponsored enterprises will each get a raise of $3.4 million, bringing their total annual compensation to $4 million, up from $600,000 each of the two previous years.
Washington cronyism. Speaking out on the hike in compensation, Rep. Scott Garrett (R-NJ), Chairman of the House Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee, blasted the FHFA for the move. “On the same day that the Ex-Im Bank expires, the crony capitalist empire strikes back at the FHFA,” said Garrett. “Fannie and Freddie have been bailed out by American taxpayers to the tune of $188 billion, yet Director Watt is handsomely rewarding the executives of these failed institutions. Today's announcement is yet another reminder that Washington cronyism is alive and well.”
Bailout a source of animosity. The GSEs were bailed out by taxpayers to the tune of $188 billion in 2009, and, as noted by Sen. Bob Corker (R-Tenn), a member of the Senate Banking Committee, an April stress test conducted by the FHFA showed that Fannie Mae and Freddie Mac could require a $157 billion taxpayer bailout to keep them afloat during a future crisis.
“I understand that Fannie Mae and Freddie Mac want to offer competitive salary and bonus packages to attract and retain talent, but because it appears that FHFA is ready to unilaterally drive the GSEs back to the failed model of private gains and public losses, this decision is just one more reason Congress must act to reform our housing finance system,” Corker said.
Legislative reform. “This decision by the Federal Housing Finance Agency to dramatically boost the salaries for the CEOs of Fannie and Freddie would appear to signal a return to business as usual,” said Sen.Mark R. Warner (D-Va), a member of the Senate Banking Committee and Ranking Member of the Banking subcommittee overseeing the secondary mortgage market. Warner also noted the taxpayer bailout of the GSEs and added that “the Senate Banking Committee last year voted in support of bipartisan reforms to fundamentally restructure the federal role in mortgage finance. These extraordinary pay raises fly in the face of the legislative intent.”
The legislation referred to by Warner is the Housing Finance Reform and Taxpayer Protection Act of 2013, S. 1217, which would wind down and eliminate Fannie Mae and Freddie Mac and establish the Federal Mortgage Insurance Corporation as an independent federal agency.
GSE compensation reform. After the announcement that Watt had directed Freddie Mac to propose executive compensation for its CEO that could be as high as the “25th percentile of the market,” Rep. Ed Royce (R-Calif) a member of the House Government Sponsored Enterprises Subcommittee, introduced legislation to block the proposed hike in pay (H.R. 2243, the Equity in Government Compensation Act of 2015).
“We appear to be tip-toeing back to a permanent quasi-state for our secondary housing market with private market compensation levels backed by taxpayers,” Royce said. His intention is to advance the legislation introduced last month. “I look forward to working with Chairman Hensarling to legislatively rein in executive salaries at these government-backed monopolies, a proposal that has won bipartisan support in the past."
For more information about GSE compensation and reform, subscribe to the Banking and Finance Law Daily.
The recent jump in compensation for Fannie Mae and Freddie Mac chief executives has spurred a bipartisan backlash from outraged members of both the Senate and House. The CEOs of the government sponsored enterprises will each get a raise of $3.4 million, bringing their total annual compensation to $4 million, up from $600,000 each of the two previous years.
Washington cronyism. Speaking out on the hike in compensation, Rep. Scott Garrett (R-NJ), Chairman of the House Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee, blasted the FHFA for the move. “On the same day that the Ex-Im Bank expires, the crony capitalist empire strikes back at the FHFA,” said Garrett. “Fannie and Freddie have been bailed out by American taxpayers to the tune of $188 billion, yet Director Watt is handsomely rewarding the executives of these failed institutions. Today's announcement is yet another reminder that Washington cronyism is alive and well.”
Bailout a source of animosity. The GSEs were bailed out by taxpayers to the tune of $188 billion in 2009, and, as noted by Sen. Bob Corker (R-Tenn), a member of the Senate Banking Committee, an April stress test conducted by the FHFA showed that Fannie Mae and Freddie Mac could require a $157 billion taxpayer bailout to keep them afloat during a future crisis.
“I understand that Fannie Mae and Freddie Mac want to offer competitive salary and bonus packages to attract and retain talent, but because it appears that FHFA is ready to unilaterally drive the GSEs back to the failed model of private gains and public losses, this decision is just one more reason Congress must act to reform our housing finance system,” Corker said.
Legislative reform. “This decision by the Federal Housing Finance Agency to dramatically boost the salaries for the CEOs of Fannie and Freddie would appear to signal a return to business as usual,” said Sen.Mark R. Warner (D-Va), a member of the Senate Banking Committee and Ranking Member of the Banking subcommittee overseeing the secondary mortgage market. Warner also noted the taxpayer bailout of the GSEs and added that “the Senate Banking Committee last year voted in support of bipartisan reforms to fundamentally restructure the federal role in mortgage finance. These extraordinary pay raises fly in the face of the legislative intent.”
The legislation referred to by Warner is the Housing Finance Reform and Taxpayer Protection Act of 2013, S. 1217, which would wind down and eliminate Fannie Mae and Freddie Mac and establish the Federal Mortgage Insurance Corporation as an independent federal agency.
GSE compensation reform. After the announcement that Watt had directed Freddie Mac to propose executive compensation for its CEO that could be as high as the “25th percentile of the market,” Rep. Ed Royce (R-Calif) a member of the House Government Sponsored Enterprises Subcommittee, introduced legislation to block the proposed hike in pay (H.R. 2243, the Equity in Government Compensation Act of 2015).
“We appear to be tip-toeing back to a permanent quasi-state for our secondary housing market with private market compensation levels backed by taxpayers,” Royce said. His intention is to advance the legislation introduced last month. “I look forward to working with Chairman Hensarling to legislatively rein in executive salaries at these government-backed monopolies, a proposal that has won bipartisan support in the past."
For more information about GSE compensation and reform, subscribe to the Banking and Finance Law Daily.
Thursday, July 2, 2015
CFPB intent on curing ill formed medical debt collection practices
By Andrew A. Turner, J.D.
The latest salvo from the Consumer Financial Protection Bureau on medical debt collection comes in the form of an enforcement action ordering Syndicated Office Systems to pay over $5.4 million to consumers and pay a $500,000 penalty based on findings the company had no policies or procedures in place to investigate consumer credit report disputes. The mishandling of disputes by a debt collection agency that primarily collects medical debt on behalf of hospitals, doctors, and other healthcare providers constituted a violation of the Fair Credit Reporting Act, according to the CFPB.
In a consent order, Syndicated Office Systems neither admitted nor denied the CFPB’s findings which also included violations of the Fair Debt Collection Practices Act for failing to send debt validation notices that prevented consumers from exercising their rights and correcting errors. Commenting on the settlement, CFPB Director Richard Cordray had strong words, saying that the violations were "particularly egregious given the challenges many consumers already face who are attempting to navigate the medical debt maze."
Judging from the remedy for the violations, a primary concern of the CFPB is the need for medical debt collectors to have policies in place to comply with credit reporting and debt collection requirements. Besides the monetary relief, Syndicated Office Systems was ordered to change business practices and establish consumer safeguards.
During the past two years, there has been a string of CFPB activity touching on medical debt issues. A May 2014 research report found that medical debt can overly penalize consumer credit scores. The Bureau expressed concern that the complex processes by which medical bills are incurred, collected by a wide range of debt collectors, and reported to credit reporting agencies can create unique challenges for consumers.
A December 2014 medical debt study found medical debt has a significant impact on consumer credit, as 43 million Americans have overdue medical debt on their credit reports. At that time, the CFPB announced that the major consumer reporting agencies will be required to provide regular reports to the Bureau on how disputes from consumers are being handled. Commenting on the action to improve credit report accuracy, Cordray said "getting medical care should not make your credit report sick."
The CFPB is also in the process of developing proposed rules concerning debt collection after receiving more than 23,000 comments in response to an Advanced Notice of Proposed Rulemaking. Consumer groups and industry groups have staked out opposing views. The American Hospital Association (AHA), an organization that represents nearly 5,000 member hospitals, health systems, and other health care organizations, requested that the CFPB consider "the unique attributes of medical debt in the hospital setting" when issuing future regulations. On the other hand, the National Consumer Law Center urges the CFPB to examine the larger medical debt collection agencies, as well as taking other regulatory actions.
As to what the CFPB will do next to address concerns over medical debt collection practices, stay tuned.
For more information about medical debt collection issues, subscribe to the Banking and Finance Law Daily.
The latest salvo from the Consumer Financial Protection Bureau on medical debt collection comes in the form of an enforcement action ordering Syndicated Office Systems to pay over $5.4 million to consumers and pay a $500,000 penalty based on findings the company had no policies or procedures in place to investigate consumer credit report disputes. The mishandling of disputes by a debt collection agency that primarily collects medical debt on behalf of hospitals, doctors, and other healthcare providers constituted a violation of the Fair Credit Reporting Act, according to the CFPB.
In a consent order, Syndicated Office Systems neither admitted nor denied the CFPB’s findings which also included violations of the Fair Debt Collection Practices Act for failing to send debt validation notices that prevented consumers from exercising their rights and correcting errors. Commenting on the settlement, CFPB Director Richard Cordray had strong words, saying that the violations were "particularly egregious given the challenges many consumers already face who are attempting to navigate the medical debt maze."
Judging from the remedy for the violations, a primary concern of the CFPB is the need for medical debt collectors to have policies in place to comply with credit reporting and debt collection requirements. Besides the monetary relief, Syndicated Office Systems was ordered to change business practices and establish consumer safeguards.
During the past two years, there has been a string of CFPB activity touching on medical debt issues. A May 2014 research report found that medical debt can overly penalize consumer credit scores. The Bureau expressed concern that the complex processes by which medical bills are incurred, collected by a wide range of debt collectors, and reported to credit reporting agencies can create unique challenges for consumers.
A December 2014 medical debt study found medical debt has a significant impact on consumer credit, as 43 million Americans have overdue medical debt on their credit reports. At that time, the CFPB announced that the major consumer reporting agencies will be required to provide regular reports to the Bureau on how disputes from consumers are being handled. Commenting on the action to improve credit report accuracy, Cordray said "getting medical care should not make your credit report sick."
The CFPB is also in the process of developing proposed rules concerning debt collection after receiving more than 23,000 comments in response to an Advanced Notice of Proposed Rulemaking. Consumer groups and industry groups have staked out opposing views. The American Hospital Association (AHA), an organization that represents nearly 5,000 member hospitals, health systems, and other health care organizations, requested that the CFPB consider "the unique attributes of medical debt in the hospital setting" when issuing future regulations. On the other hand, the National Consumer Law Center urges the CFPB to examine the larger medical debt collection agencies, as well as taking other regulatory actions.
As to what the CFPB will do next to address concerns over medical debt collection practices, stay tuned.
For more information about medical debt collection issues, subscribe to the Banking and Finance Law Daily.
Wednesday, July 1, 2015
Cordray shuts out PHH motion for stay: Ball in PHH court
By Katalina M. Bianco, J.D.
The Consumer Financial Protection Bureau has fired the latest salvo in the ongoing battle between the bureau and mortgage lender PHH Corporation. CFPB Director Richard Cordray denied PHH’s motion to stay a decision and final order entered against PHH pending appellate review of its case. In response, PHH filed a petition for review with the D.C. Circuit Court of Appeals.
Battle background. On Jan. 29, 2014, the CFPB filed an administrative complaint against PHH and its affiliated companies charging that the companies carried out a scheme under which mortgage insurers paid kickbacks in exchange for referrals. According to the CFPB, the arrangement persisted over approximately 15 years and allowed the companies to collect “hundreds of millions of dollars in kickbacks.” PHH issued a response stating it would “vigorously defend against the CFPB's allegations.” Since that time, the CFPB and PHH have gone toe-to-toe in a series of legal maneuvers.
On Nov. 25, 2014, Administrative Law Judge Cameron Elliot issued a recommended decision in the action, finding that the mortgage company accepted reinsurance premiums in violation of Sections 8(a) and 8(b) of the Real Estate Settlement Procedures Act. The RD includes imposition of an injunction and disgorgement of almost $6.5 million as to all respondents jointly and severally. The proposed order against PHH enjoined the corporation from violating RESPA Sections 8(a) and 8(b) and engaging in the business of providing captive insurance for a period of 15 years from the date of the order. PHH and its affiliated companies also were ordered to disclose to the bureau’s Office of Enforcement within 30 days of the order all services provided to any of them by any mortgage insurance company since Jan. 1, 2004. PHH filed a notice of appeal following the RD, becoming the first to appeal a CFPB administrative enforcement action.
Decision and order. The CFPB issued a decision and final order in the PHH action on June 4, 2015. The Director’s decision concludes that PHH illegally referred consumers to mortgage insurers in exchange for kickbacks. He also issued a final order that prohibits PHH from violating the law and requires it to pay $109 million to the bureau.
Motion to stay decision and order. On June 16, 2015, PHH moved for a stay of the decision and final order pending appellate review. PHH contends in its motion that a stay is appropriate because:
- PHH is likely to succeed on the merits;
- the injunctive provisions of the final order are "impermissibly vague, are beyond the scope of the Notice of Charges, and violate" PHH's due process rights;
- there is no need for injunctive relief because no mortgage loans have been placed in reinsurance books since 29009;
- any payment before PHH has had the opportunity to seek judicial review is unwarranted and would cause irreparable harm; and
- public interest lies with allowing PHH to "have their day in court."
The motion concludes by requesting that should the CFPB Director deny PHH’s request for a stay, the implementation of the final order be delayed by an additional 30 days.
Proposed orders. On June 16, Cordray entered a proposed order granting a temporary stay until Aug. 3, 2015. A second proposed order dated the same day granted a stay of the final order pending judicial review by the U.S. Court of Appeals for the District of Columbia Circuit.
Enforcement Council position. The Enforcement Council weighed in against the stay, stating that “PHH seeks the extraordinary remedy of a stay of a final administrative order that already contains within it all the relief to which a litigant is normally due.” The EC further stated that PHH is “unpersuasive” in its arguments. Specifically, the EC found that PHH failed to establish a likelihood of success on appeal and would not be irreparably harmed if the stay was not granted. Further, the non-money injunctive relief will not cause irreparable harm, and PHH's contention that it is unlawful is "both plainly wrong and irrelevant."
PHH support of its motion. PHH defended the motion, stating that it should be granted because Cordray’s decision and order “is legally flawed in multiple respects.” Putting the order into effect would “irreparably harm” PHH “with no offsetting benefit to the public interest.”
Director’s decision and final order. On June 24, 2015, Director Cordray entered a decision and final order denying PHH’s motion to stay the June 4 final order. Cordray noted in the decision that the relevant CFPB rule for adjudicative proceedings states that an order "becomes effective at 30 days after the date of service" unless the order is stayed (12 C.F .R. § 1081.407(a)) which means the order is to take effect on July 6, 2015. The rule also sets out the standard for a stay motion, which must address four factors: "the likelihood of the movant's success on appeal; whether the movant will suffer irreparable harm if a stay is not granted; the degree of injury to other parties if a stay is granted; and why the stay is in the public interest." (12 C.F.R. § 1081.407(c)). PHH's motion addresses these factors, the Director said, but PHH “fails to make any showing that would warrant a stay pending appellate review.”
Cordray denied the motion to the extent it seeks a stay pending judicial review. However, the CFPB director also granted a 30-day stay of the order. The order now will take effect on Aug. 5, 2015, to “allow a more orderly process of review” and “give PHH time to seek a stay from the D.C. Circuit.”
Cordray reasoned that PHH's motion fails because PHH did not meet its burden with respect to the second factor, which addresses irreparable harm. “This factor is so crucial to a stay that a failure to show irreparable harm is grounds for denial, even if the other three factors favor such relief (Chaplaincy of Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006)). “Accordingly, it is not necessary for me to address the other three factors here.”
As to the harm that would result from the order, the Director responds that PHH’s arguments do not show that the provisions of the injunction would cause PHH harm that would justify a stay.
Final provision. The final provision of the order requires PHH to pay approximately $109 million in disgorgement. Even though the provision permits PHH to make its payment into an escrow account pending appellate review, PHH nonetheless claims that making the payment into an escrow account will cause it irreparable harm. The CFPB answered that claim by stating that PHH failed to provide any evidence as to how this would cause “severe” consequences to its business operations, “yet that is the critical consideration here.”
Petition for review. PHH already made the next move by filing a Petition for Review in the U.S. Court of Appeals for the District of Columbia Circuit on June 19, prior to the Director’s decision and final order. In the petition, PHH states that it is seeking a review of the bureau’s final action “on the grounds that it is arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act (5 U.S.C. § 701 et seq.); violates federal law, including, but not limited to, the United States Constitution, RESPA, and the Consumer financial Protection Act of 2010, as well as regulations promulgated under those statutes; and is otherwise contrary to law.”
For more information about the CFPB and PHH, subscribe to the Banking and Finance Law Daily.
Car dealers could post privacy notices online under FTC proposal
By J. Preston Carter, J.D., LL.M.
For more information about privacy notices, subscribe to the Banking and Finance Law Daily.
The Federal Trade Commission is proposing to amend its Gramm-Leach-Bliley Act (GLBA) rules to allow auto dealers that finance car purchases or provide car leases to provide online updates to consumers about their privacy policies, rather than sending yearly updates by mail. The FTC proposal is consistent with the rule finalized by the Consumer Financial Protection Bureau in October 2014 for financial institutions.
Background. The GLBA requires financial institutions to provide their customers with initial and annual notices regarding their privacy policies. If financial institutions share certain customer information with particular types of third parties, the institutions are also required to provide an opportunity to opt out of the sharing. The FTC issued its rule implementing these provisions in 2000.
The Dodd-Frank Act transferred most of the GLBA privacy notice rulemaking authority to the CFPB; however, the FTC retained authority over motor vehicle dealers. In October 2014, the CFPB finalized a rule allowing companies that limit their consumer data-sharing and otherwise meet certain requirements to post their annual privacy notices online. The FTC stated that its proposed changes are consistent with those issued by the CFPB.
Proposed amendment. Under the proposed revision to the FTC’s privacy rule (16 CFR Part 313), auto dealers that do not engage in certain types of information-sharing activities would be able to provide consumers with the privacy policy solely online, as long as the company notifies consumers on a yearly basis that the policy is viewable online. The rule change would require this notification to be part of some other legally required document provided to consumers.
The revised rule still would require dealers to provide consumers with a written copy of the notice upon request. In addition, if a dealer’s privacy policy has changed since a consumer was last provided a written notice, the consumer must be provided a copy of the new policy in writing. Dealers who share consumers’ personal data with third parties in a way that requires a consumer to have the ability to opt-out would not be allowed to provide their privacy policy only online. The amendments also include clarifications to the language of the rule to reflect the Commission’s authority under the Gramm-Leach-Bliley Act.
The proposed changes will be subject to public comment through Aug. 31, 2015, after which the FTC will decide whether to make the proposed changes final.
For more information about privacy notices, subscribe to the Banking and Finance Law Daily.
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