Consumer Financial Protection Bureau Reporter

Senate confirms Richard Cordray as CFPB Director
On July 16, 2013, the U.S. Senate voted 66 to 34 to confirm Richard Cordray to be Director of the Consumer Financial Protection Bureau. Earlier in the day, the Senate voted 71 to 29 to end debate on the Cordray nomination. Following Senate Resolution 15, the Senate was supposed to have up to eight hours of post-cloture debate. The vote came after a July 15, 2013, meeting of 98 senators that sought to forge an agreement to avoid the so-called “nuclear option,” which would have ended filibusters of presidential nominees for executive branch positions. This story appears in Report 98, July 22, 2013.

CFPB adopts rule on supervising nonbanks that pose risks to consumers
The Consumer Financial Protection Bureau has established the procedures it will use when it believes that a nonbank company offering consumer financial products or services presents risks to consumers. According to the CFPB, the rule will cover companies that provide consumer products or services but do not have a bank, thrift, or credit union charter. The Dodd-Frank Act gives the bureau the authority to take steps to supervise such a company if it has reasonable cause to conclude the company has engaged in or is engaging in conduct that poses risks to consumers. The rule sets the procedures the CFPB will follow in notifying a nonbank that it is being considered for supervision, including how the company can respond to the notice. The final rule is at ¶300-165.

CFPB finalizes clarifications to ability-to-repay and mortgage servicing rules
The Consumer Financial Protection Bureau has adopted a final rule implementing corrections, clarifications, and amendments to its ability-to-repay and mortgage servicing rules. The amendments were proposed in April 2013. The ability-to-repay rule is intended to protect consumers by requiring that lenders make a reasonable, good-faith determination that prospective borrowers have the ability to repay their loans, the bureau noted in its announcement. The mortgage servicing rules establish protections for homeowners as they repay their loans. The CFPB’s final rule is reported at ¶300-168.

CFPB alleges incentivizing upcharging consumers
On July 23, 2013, the Consumer Financial Protection Bureau filed a complaint in the United States District Court for the District of Utah, Central Division, against Castle & Cooke Mortgage LLC, a Utah-based mortgage company, and two of its officers illegally gave bonuses to loan officers who steered consumers into mortgages with higher interest rates (upcharging). Under the complaint, the bureau is seeking to end this practice, restitution for those consumers who were upcharged, civil money penalties, and reasonable attorney’s fees. This story appears in Report 99, July 29, 2013.

CFPB provides tools for implementing mortgage rules
The Consumer Financial Protection Bureau has released new guidance intended to assist financial institutions in implementing the bureau’s 2013 mortgage rules. The guidance, titled the 2013 CFPB Dodd-Frank Mortgage Rules Readiness Guide, consists of four parts and includes summaries of the rules, a questionnaire, a set of Frequently Asked Questions, and a list of tools to help financial institutions wade through the myriad of rules to come into, and maintain, compliance. The guide is at ¶1538.

CFPB targets unlawful debt collection practices
The Consumer Financial Protection Bureau is warning companies that they will be held accountable for harmful debt collection practices. The bureau announced in a July 10, 2013, release that it has published two bulletins on the subject and has begun accepting debt collection complaints. The bureau’s bulletins are at ¶13-504 and ¶13-505.

CFPB takes action against U.S. bank for MILES Program violations
The Consumer Financial Protection Bureau has ordered U.S. Bank and one of its nonbank partner companies, Dealers’ Financial Services (DFS), to end deceptive marketing and lending practices that target active-duty military. As a condition of the order, the two financial institutions must return about $6.5 million to servicemembers for failing to properly disclose all the fees charged to participants in the companies’ Military Installment Loans and Educational Services (MILES) auto loans program, and for misrepresenting the true costs and coverage of add-on products financed along with the auto loans. In the Matter of U.S. Bank National Association: consent order and stipulation is at ¶200-244; In the Matter of Dealers’ Financial Services, LLC: consent order and stipulation is at ¶200-245.

Federal Banking Law Reporter

State laws on authority to foreclose not preempted
A national bank acting as a trustee to foreclose on a trust deed for property in Utah was required to comply with Utah state laws, according to the Utah Supreme Court. The National Bank Act did not preempt the state’s laws, the court said, and the Office of the Comptroller of the Currency regulations that would have preempted Utah laws were an unreasonable interpretation of the NBA. Federal National Mortgage Association v. Sundquist (Utah Sup. Ct.) is at ¶101-420.

CFPB targets unlawful debt collection practices      
The Consumer Financial Protection Bureau is warning all companies under its supervision that they will be held accountable for harmful debt collection practices. The bureau announced in a July 10, 2013, release that it has published two bulletins on the subject and has begun accepting debt collection complaints. The notice is at ¶152-560.

Amendments to mortgage rules adopted
The Consumer Financial Protection Bureau has amended its rules that require mortgage lenders to determine a consumer’s ability to repay and that establish standards for mortgage loan servicers. According to the bureau, the amendments: clarify how lenders are to calculate a consumer’s debt-to-income ratio; specify that the Real Estate Settlement Procedures Act provisions do not preempt state laws on mortgage servicing; establish which loans will be considered in determining whether a lender qualifies for the small servicer exemption; and clarify the temporary qualified mortgage standards that apply to loans based on their eligibility for purchase by a government-sponsored enterprise or a federal government agency. The notice is at ¶152-559.

Right to rescind mortgage must be exercised by filing suit
Consumers who wanted to rescind their home mortgage refinancing loans based on claims of faulty lender disclosures were required to file suit within three years of the loan transaction closing, the U.S. Court of Appeals for the Eighth Circuit has determined. Simply sending a written notice within the three-year term was insufficient, the court declared. This story on Keiran v. Home Capital, Inc. (8thCir) appears in Report No. 2527, July 19, 2013.

Capital leverage ratio rule finalized
A framework has been finalized requiring banking organizations to hold more and higher quality capital to provide a financial cushion to absorb losses and reduce the incentive for firms to take excessive risks. The rule, jointly issued by the Federal Reserve Board, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency, is intended to make banking organizations “better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy,” stated Fed Chairman Ben Bernanke. The notice is at ¶152-506.

Supplementary leverage ratio standards proposed
The federal regulators have proposed a rule to strengthen the leverage ratio standards for the eight largest, most systemically significant U.S. banking organizations. The eight banking organizations that would be subject to the supplementary leverage requirements are JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, Bank of New York Mellon Corp., and State Street Corp. These banking organizations have been deemed to be Global Systemically Important Banks by the Financial Stability Board. This story appeared in Report No. 2526, July 12, 2013.

Consumer Credit Guide

TILA right to rescind mortgage must be exercised by filing suit, says Eighth Circuit
In connection with a consumer’s right to rescind a mortgage transaction under the federal Truth in Lending Act, consumers who wanted to rescind their home mortgage refinancing loans based on claims of faulty lender disclosures were required to file suit within three years of the loan closing, the U.S. Court of Appeals for the Eighth Circuit has determined. Simply sending a written notice within the three-year term was insufficient, the court declared. The issue of whether a consumer’s written notice to a mortgage creditor within the three-year term would preserve the TILA right to rescind so that it could be asserted in a suit filed more than three years after the loan’s closing has been considered and decided by four other federal appellate courts; those four circuits are evenly divided on the question. This story of the Eighth Circuit’s decision in Keiran v. Home Capital, Inc. appeared in Report No. 1172, July 23, 2013.

CFPB targets unlawful debt collection practices
The Consumer Financial Protection Bureau is warning all companies under its supervision that they will be held accountable for harmful debt collection practices. The CFPB announced that it published two bulletins on July 10, 2013, on the subject and has begun accepting debt collection complaints as well. The first CFPB bulletin warns that any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive acts or practices in collecting a consumer’s debts. The second CFPB bulletin provides guidance to companies on statements they make about how paying a debt will affect a consumer’s credit score, credit report, or creditworthiness. In addition, the CFPB published five sample “action letters” that consumers may use when corresponding with debt collectors. The samples are intended to help consumers obtain information about claims being made against them and to protect consumers from inappropriate or unwanted collection activities. This story appeared in Report No. 1172, July 23, 2013.

While not a “debt collector,” creditor’s notices constituted ECOA “adverse action”
A creditor that sent mortgage loan borrowers a series of default notices, culminating in a notice that the loan had been accelerated and was due in full, was deemed to have taken an “adverse action” against the borrowers under the federal Equal Credit Opportunity Act, the U.S. Court of Appeals for the Ninth Circuit ruled. The course of conduct would have amounted to a revocation of credit under the ECOA even though the lender and borrowers had previously entered into a loan modification agreement that could not be revoked, the court determined. However, the court affirmed the dismissal of the borrowers’ federal Fair Debt Collection Practices Act claim after finding that the lender could not be considered a “debt collector” under the Act. While the court conceded that the transmittal of one default notice might not be an ECOA adverse action, the court noted the number of default notices sent by the bank to the borrowers; moreover, the bank’s failure to see the error of its ways until a suit was filed convinced the court that the borrowers adequately described an adverse action requiring the statutorily-mandated notice. Schlegel v. Wells Fargo Bank, NA (9th Cir) ¶52,508.

Assignee could be liable for lender’s predatory lending practices
The Massachusetts Supreme Court recently reversed the entry of a summary judgment in favor of an assignee bank in a borrowers’ predatory lending action relating to a home refinancing. The borrowers also claimed that the loan was unconscionable and therefore unenforceable. The threshold issue for the court was whether the loan came within the purview of the state’s Predatory Home Loan Practices Act (PHLPA). The court determined that the bank was not entitled to summary judgment on the borrowers’ PHLPA claim because the bank failed to refute evidence that a title examination was never performed despite a fee—an issue of disputed material fact was present in the case. In addressing the borrowers’ Consumer Protection Act (CPA) claims, the court identified the pivotal issue as whether the lender should have recognized at the outset that the borrowers were unlikely to be able to repay the loan. Because undisputed documentation showed that the lender issued the loan with monthly payments exceeding the borrowers’ total monthly income, a determination about whether the lender acted unfairly or deceptively in violation of the CPA when originating the loan was to be made by the finder of fact. Further, these repayment terms also raised a question about the unconscionability of the loan as a violation of the Borrower's Interest Act, which prohibits lenders from originating certain home refinancing loans that are not in the borrower’s interest. This story of the Massachusetts Supreme Court’s decision in Drakopoulos vs. U.S. Bank National Association appeared in Report No. 1172, July 23, 2013.

State Law Update

California: Governor Jerry Brown signed legislation regulating collection practices in connection with purchased consumer debt. The Fair Debt Buying Practices Act is intended to provide better documentation of alleged debts to consumers who are contacted by debt collectors. Analysis appears in Report No. 1172, July 23, 2013.

Connecticut: Legislation expanding Connecticut’s consumer collection agencies law brings debt buyers under the law’s regulatory purview. A debt buyer includes any person who buys debt that is delinquent or in default and then engages in the business of collecting on the debt. Analysis appears in Report No. 1172, July 23, 2013.

Delaware: The Delaware Clean Credit and Identity Theft Prevention Act has been amended to lower the fee a consumer reporting agency may charge a consumer for certain security freeze services and to expand the categories of agencies that are exempt from the Act’s security freeze requirements. The law is at Delaware ¶6373.

Kansas: As of July 1, 2013, the maximum annual interest rate that can be charged for first mortgage loans and contracts for deed is 15 percent per annum, unless otherwise specifically authorized by law. Legislation enacted during the 2013 legislative session removed a long-standing floating interest rate cap that required monthly computation and publication. The law is at Kansas ¶6405A.

Missouri: Amendments to the Consumer Loan Act will allow lenders to charge higher fees for open-end loans that are tied to a transaction account. The change effectively allows state-chartered banks to compete with national banks and payday lenders for short-term loan customers. The law is at Missouri ¶7840. Meanwhile, Governor Jay Nixon vetoed legislation (H.B. 329) that would have increased the maximum fee a lender can charge on certain closed-end loans. Analysis appears in Report No. 1171, July 9, 2013.

Smart Charts Highlights

Some of the latest changes reflected in Consumer Credit Smart Charts include:

• The Legislative Developments Smart Charts are updated regularly as legislation is enacted allowing users to keep up to date without waiting for a scheduled Report. Links to legislative summaries and to full text of laws amended, repealed or added are provided. Recent updates include:
• Connecticut: Linked Prepaid Cards.
• North Carolina: GAP Waivers.

Secured Transactions Guide

Agricultural lien superior to perfected security interest
A bank’s perfected security interest did not have priority over the Ohio Department of Agriculture’s (ODA) statutory right to enforce farmers’ agricultural liens against a failed debtor, because the Ohio law that created the ODA’s authority took precedence over Article 9 of the Ohio UCC. The debtor operated a grain elevator and took possession of grain from area farmers. A statutory lien in favor of the farmer attached and became effective at the time the grain was delivered to the debtor. The preferred liens did not terminate until the monies owed to the farmer were paid. After the debtor failed, the ODA filed an action against the debtor and the bank, seeking to prevent the debtor from selling the grain and to prevent the bank from physically seizing the grain. The bank objected, arguing that the ODA’s authority did not have priority over the bank’s perfected security interest. Chapter 926 of the Ohio Code grants the ODA the authority to enforce liens created in favor of the farmers after a farm commodity operator, such as the debtor, fails. The law also provides that, in the event of a conflict between directives of the law and contrary results directed by Articles 7 and 9 of the Ohio UCC, the provisions of Ch. 926 “take precedence.” Ohio Department of Agriculture v. Central Erie Supply & Elevator Assn. (OhioCtApp), ¶56,324.

Loan agreement created valid security interest in debtor’s vehicle
A creditor could assert a valid secured claim against a debtor’s bankruptcy estate for the remaining balance due for repairs to the debtor’s vehicle. The debtor had signed a loan agreement that granted the creditor a security interest in the debtor’s vehicle to secure the balance due on the repairs. The loan agreement was an authenticated security agreement that created a valid security interest in the vehicle. Article 9 of the Ohio UCC defines a “security agreement” as “an agreement that creates or provides for a security interest,” which is “an interest in personal property or fixtures which secures payment or performance of an obligation.” The agreement, signed by the debtor, clearly indicated an intention to grant a lien, which is an interest, in the debtor’s vehicle, to secure repayment of the preexisting balance due for repairs. The agreement also contained an adequate description of the collateral, as it included the make, model and vehicle identification number of the vehicle. In re Caffey (Bankr NDOhio), ¶56,322.

State Law Update

Florida: Florida has created a new criminal penalty for filing a false instrument against another. According to the new law, a person who files or directs a filer to file, with the intent to defraud or harass another, any instrument containing a materially false, fictitious, or fraudulent statement or representation that purports to affect an owner's interest in the property described in the instrument commits a third-degree felony. An instrument includes liens, financing statements, and other encumbrances or claims against real or personal property. The law appears at Florida, ¶200 and ¶205.

Massachusetts: Massachusetts has enacted Revised Article 1 and Revised Article 7 of the UCC, as well as the 2010 Uniform Laws Commission (ULC) and the American Law Institute (ALI) Article 9 amendments. The law, as enacted, follows the uniform laws on a section-by-section basis. The law begins at Massachusetts, ¶R651.

North Carolina: North Carolina has amended its procedures for the enforcement of self-service storage facility liens to allow for notice of sale by email, provide for advertisement of the sale in a commercially reasonable manner, and to allow an owner to have a trailer or watercraft towed from the facility if the occupant has been in default for 60 days. The law appears at North Carolina, ¶1201 and ¶1204.

Ohio: Ohio has amended its law relating to agricultural commodity liens to revise the definition of “agricultural commodity” and clarify that a lien in favor of the Ohio Department of Agriculture (ODA) has priority over all competing lien claims asserted against agricultural commodity assets. The law appears at Ohio, ¶455.

Rhode Island: Rhode Island has revised its law relating to homestead and personal property exemptions to increase the value of personal property exempt from execution and judgment. According to the amended law, an individual is entitled to an exemption in the amount of $2,000, formerly $1,500, for the working tools of a debtor that are necessary in the debtor’s usual occupation. The law appears at Rhode Island, ¶1135.

Product Enhancements

Amended UCC financing statements, related forms reflected
The International Association of Commercial Administrators (IACA) has released amended UCC forms that reflect the amendments proposed by the Uniform Law Commission and American Law Institute in 2010. The model forms are provided by IACA for use by the states, although some states may adopts variation in the forms, so long as they comply with the particular state’s Article 9 requirements. The new forms are available at Specimen Forms, ¶29,011—¶29,031.

Financial Privacy Law Guide

Veterans’ home loan refinancer to pay do not call penalty
Under a proposed settlement agreement with the Federal Trade Commission and the U.S. Department of Justice, Mortgage Investors Corporation, a major refinancer of home loans to U.S. veterans, is required to pay a $7.5 million civil penalty in connection with its allegedly unlawful telemarketing practices concerning the marketing and sale of its mortgage credit products to service members. According to an FTC press release, not only is the $7.5 million civil penalty the largest fine the FTC has ever collected for alleged violations of the “Do Not Call” provisions of the FTC’s Telemarketing Sales Rule (TSR), but also the case is the first action brought by the FTC to enforce the Mortgage Acts and Practices-Advertising Rule (MAP Rule), which permits the FTC to collect civil penalties for deceptive mortgage ads. This story appears in Report No. 145, July 17, 2013.

FTC sues “free gift card scammers”
The Federal Trade Commission has filed a complaint against an alleged international network of “scammers” that sent millions of unwanted text messages to consumers using the lure of “free” gift cards and electronics to ensnare the victims in a scheme designed to take their money and target them for illegal robocalls.. This story appears in Privacy Extra, July 31, 2013.

State Law Update

Delaware: The Delaware Clean Credit and Identity Theft Prevention Act has been amended to lower the fee a consumer reporting agency may charge a consumer for certain security freeze services and to expand the categories of agencies that are exempt from the Act’s security freeze requirements. This story on Ch. 109 appears in Privacy Extra, July 31, 2013.

Florida: New legislation in Florida makes it unlawful to intentionally or knowingly possess, without authorization, the personal identification information (PII) of another person in any form including but not limited to mail, physical documents, identification cards, or information stored in digital form. Florida already has in place a law making it a crime to willfully and without authorization fraudulently use, or possess with intent to fraudulently use, PII concerning an individual without first obtaining that individual’s consent. The new law is similar, but does not require the element of fraudulent intent. This story on Ch. 242 appears in Report No. 145, July 17, 2013.

Kansas: The definition of the crime of identity theft has been amended to include obtaining, possessing, transferring, using, selling, or purchasing any personal identifying information, or document containing that information, belonging to or issued to another person with intent to misrepresent that person in order to subject that person to economic or bodily harm. Commission of such acts is a severity level 8, nonperson felony, except where monetary loss to the victim is more than $100,000, in which case it will be a severity level 5, nonperson felony. This story on Ch. 96 appears in Report No. 145, July 17, 2013.

Oregon: Recent legislation expanded the Oregon Consumer Identity Theft Protection Act to allow parents or guardians to freeze the credit reports of minors and protected persons. In the event that a protected person does not have a credit report, the measure requires credit reporting agencies (CRAs) to make a protective record for the individual and place a freeze on that record. Protected persons are not older than 16 years old, or incapacitated or for whom a court has appointed a guardian or conservator. This story on Ch. 415 appears in Report No. 145, July 17, 2013.

Texas: Texas amended its security breach disclosure requirements by providing that , if an individual whose sensitive personal information was or is reasonably believed to have been acquired by an unauthorized person is a resident of a state that requires a person to provide notice of a breach of system security, the notice of the breach may be provided under that state’s law or under Texas law. Prior law did not specify that a resident outside of Texas could satisfy Texas breach notice requirements by satisfying the Texas. This story on Ch. 415 appears in Report No. 145, July 17, 2013.