Consumer Financial Protection Bureau Reporter

CFPB denies petitions to set aside CIDs, keep petition confidential
The Consumer Financial Protection Bureau has denied a joint petition to set aside civil investigative demands (CIDs) the bureau issued to Great Plains Lending, LLC, MobiLoans, LLC, and Plain Green, LLC. The lenders were directed to comply with the CIDs within 21 days of the decision. The bureau also denied a request for confidential treatment of the joint petition. The CFPB denied the joint petition because the petition presents issues of federal authority over lenders whose businesses are related to Indian tribes. The bureau has decided that these issues bear precedential value and merit further discussion. The CFPB’s decision, order and related documents are reported at ¶200-272.

CFPB to settle TSR violations with debt-settlement payment processor
The Consumer Financial Protection Bureau has announced an enforcement action against Meracord LLC, a leading debt-settlement payment processor, for allegedly helping others to collect millions of dollars in illegal upfront fees from consumers. The bureau is seeking approval of a consent order from a federal district court that would require Meracord and its Chief Executive Owner and owner, Linda Remsberg, to halt all illegal activities and to pay a $1.376 million civil penalty. The CFPB’s complaint and proposed stipulated final judgment and consent order are reported at ¶200-274.

Interim final rule, guidance clarify mortgage servicing rules
The Consumer Financial Protection Bureau has issued an interim final rule that is intended to provide clarity to the 2013 Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) Servicing Final Rules that will take effect on Jan. 10, 2014. The CFPB simultaneously released guidance on the implementation of the rules (CFPB Bulletin 2013-12). CFPB Director Richard Cordray said in a bureau release that the CFPB heard from “many sources” that these issues should be addressed prior to implementation of the servicing rules. “When mortgage servicers better understand the rules they have to follow, that is better for consumers,” he said. The interim final rule can be found at ¶300-174, and the guidance clarifying the mortgage servicing rules is at ¶24-018.

Offering only qualified mortgages will not alone create fair lending violation risk
A financial institution’s decision to offer only mortgage loans that meet the criteria for Qualified Mortgages under the Consumer Financial Protection Bureau’s rules will not automatically be considered to violate equal credit opportunity or fair housing requirements, according to the federal bank, thrift, and credit union regulatory agencies. An interagency statement by the CFPB, Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, and National Credit Union Administration advises lenders that the Qualified Mortgage rule, which takes effect in January 2014, does not present risks that are significantly different from those that were caused by other past regulatory changes. This story appears in Report 112, Oct. 28, 2013.

Product Enhancements

Updates to Practice Commentaries
The practice commentaries and analyses in the “Consumer Financial Protection Act” division and each of the divisions for the federal consumer protection laws over which the Consumer Financial Protection Bureau has regulatory authority have been updated to reflect regulations and guidance issued by the CFPB. The practice commentary and analysis in the Consumer Financial Protection Bureau Reporter is written by authors Ralph C. Ferrara and Timothy Q. Karcher of Proskauer Rose LLP and original co-author Gary Apfel of Pepper Hamilton LLP.

Federal Banking Law Reporter

Fed approves proposed liquidity coverage ratio
Following its Oct. 24, 2013, open meeting, the Federal Reserve Board has proposed a standardized minimum liquidity requirement for certain banking organizations and systemically important, non-bank financial companies designated by the Financial Stability Oversight Council. The proposed “liquidity coverage ratio,” or LCR, would require each institution to hold high-quality, liquid assets (HQLA), such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash, in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a short-term stress period. The notice is at ¶152-690.

Agencies revise guidance on classifying, appraising securities
Following up on a requirement of the Dodd-Frank Act, the federal banking prudential regulators are revising their interagency guidance on the classification and appraisal of debt securities to remove references to credit ratings. The new guidance replaces those references with new creditworthiness standards and gives examples of how those standards apply in light of the agencies’ existing classifications. This story appears in Report 2542, Nov. 1, 2013.

Agencies expand guidance on troubled debt restructurings
The federal bank, thrift, and credit union regulatory agencies have issued new interagency supervisory guidance on how institutions should treat real estate loans that have undergone troubled debt restructurings (TDRs). The guidance includes detailed information on the differences between the accounting treatment and classification standards for TDRs that are considered to be collateral-dependent and those that are not. The guidance is at ¶63-810D.

Consumer Credit Guide

Offer to settle claim in bankruptcy could violate debt collection law
An offer to settle a claim in bankruptcy sent by a creditor’s attorney to the consumers’ attorney could violate the Fair Debt Collection Practices Act without conflicting with the remedies provided by the Bankruptcy Code, the U.S. Court of Appeals for the Third Circuit has decided. The Bankruptcy Code did not bar all claims under the FDCPA, the court said, and the FDCPA claims that were not in conflict could be pursued. Simon v. FIA Card Services, N.A. (3d Cir.), ¶52,534.

FDCPA claim time limit started on service, not filing, of improper suit
The statute of limitations on a claim by a consumer who was aggrieved by a debt collector’s decision to file a collection suit in the wrong county began to run when the consumer was notified of the suit, not when the suit was filed, according to the U.S. Court of Appeals for the Fifth Circuit. Two of the three judges on the panel voted in favor of a consumer-friendly interpretation of the Fair Debt Collection Practices Act despite a strong dissenting argument that the time limit began when the debt collection suit was filed. Serna v. Law Office of Joseph Onwuteaka, P.C. (5th Cir.) ¶52,535.

New York’s credit card “no surcharge” law unconstitutional
In reviewing New York’s credit card “no surcharge” law, the U.S. District Court for the Southern District of New York ruled that the state law is unconstitutionally vague and violated the plaintiffs’ right to “free speech” protected by the First Amendment to the U.S. Constitution. In reaching its decision, the federal trial court also determined that the plaintiffs—several New York retail businesses and their principals—had standing to bring the action, and granted the merchants’ request for a preliminary injunction to prevent enforcement of the New York law. Expressions Hair Design v. Schneiderman (S.D.N.Y.), ¶52,532.

State Law Update

California: Legislation expanding California’s Consumer Credit Reporting Agencies Act makes it unlawful for a consumer credit reporting agency to prohibit, or to dissuade or attempt to dissuade, a user of a consumer credit report furnished by the credit reporting agency from providing a copy of the consumer's credit report to the consumer, upon the consumer's request, if the user has taken adverse action against the consumer based on the report. The law is at California ¶6656A.

Massachusetts: Massachusetts Division of Banks (DOB) has adopted amendments to its regulations governing debt collectors that are aimed at providing enhanced consumer protections relating to mortgage loan servicing practices and standards. The amended regulations address, among other things, mortgage loan modification procedures and the permissible timing for initiating foreclosure proceedings. The regulations are at Massachusetts ¶9170.

Missouri: The Missouri General Assembly enacted legislation increasing the maximum fee a lender can charge on closed-end loans having a term of at least 30 days, from 5 percent to 10 percent of the principal loan amount, up to a maximum of $75. The measure also increases fees on open-end loans tied to a transaction account in a depository institution. For these loans, the maximum credit advance fee a creditor may charge is increased from the lesser of $25 or 5 percent of the advance to the lesser of $75 or 10 percent of the advance. The law is at Missouri ¶7840.

Oregon: Legislation expanding the scope of the Oregon Consumer Identity Theft Protection Act allows parents or guardians to freeze the credit reports of minors and protected persons. The law begins is at Oregon ¶6322.

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:
• California: Information Privacy Breach Notice Law

Secured Transactions Guide

Bank’s interest reclassified as “unsecured” for lack of tracing proceeds
Although a bank initially held a perfected security interest in a debtor company’s funds held in a deposit account with the bank, the bank’s bankruptcy claim in the debtor’s deposit account was reclassified from “secured” to “unsecured” after monies were transferred out of the debtor’s account. The court determined that neither the New York UCC nor the Bankruptcy Code provided a basis for the bank’s security interest to continue to be perfected in the deposit account when monies were transferred out of it, even though the bankruptcy trustee “recovered” account funds as part of a separate bankruptcy settlement with a third party. Under Section 9-315 of the New York UCC, a security interest in proceeds must attach to identifiable proceeds, and the secured party must identify the proceeds of a deposit account by a method of tracing. Moreover, the perfection of a security interest in deposit accounts requires “control” of the deposit account by the secured party. Once the funds left the deposit account, the bank no longer had “control” of those funds. Consequently, the bank’s interest became unperfected. In re Milton Abeles, LLC (Bankr E.D.N.Y.), ¶56,333.

Issue of whether creditor had “notice” of vessel’s sale persists
In connection with the provision of the federal maritime lien law governing the recording of a bill of sale for a federally documented vessel, the U.S. District Court for the Western District of Tennessee determined that the subject boat qualified as a "federally documented vessel" and that a judgment creditor qualified as a "person" potentially protected by federal maritime law. However, because a significant factual issue remained unresolved as to whether the judgment creditor had "actual notice" of an unrecorded sale of the vessel to a third party, the federal district court denied the judgment creditor’s motion for summary judgment. Martin v. Performance Boat Brokerage.com, LLC, et al.  (W.D. Tenn.), ¶56,334.

Perfected security interest survived creditor’s failure to file third-party claim
A creditor with a perfected security interest did not waive its interest in the collateral when it failed to file a third-party claim in accordance with Idaho state law, the Idaho Supreme Court held. A third party levied and executed upon collateral in which the creditor had a perfected security interest. The creditor asserted its claim to the collateral, and the third party challenged the claim, contending that the creditor had waived its interest in the collateral when it failed to file a third-party claim to the collateral. Section 9-315 of the Idaho UCC provides, “A security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien.” There was no requirement within the Idaho UCC to make the filing. Furthermore, the evidence clearly established that the secured creditor had not authorized the sale of the collateral free of its security interest. Keybank National Association v. PAL I, LLC (Idaho Sup. Ct.), ¶56,335.

State Update

Colorado:
In connection with the Illinois regulations implementing Article 9 of the Illinois Uniform Commercial Code, the Illinois Secretary of State has amended the regulation governing forms. The required typeface and font size for the forms have been changed to ensure the legibility of UCC records scanned into the imaging system of the Secretary of State’s UCC Division. In addition, references to the International Association of Commercial Administrators or IACA have been removed; the Illinois Secretary of State and/or its UCC Division are merely referenced now. The regulation appears at Illinois, ¶1303.

Financial Privacy Law Guide

Collateral estoppel does not bar re-litigation of TCPA claim
Collateral estoppel does not bar re-litigating a Telephone Consumer Protection Act (TCPA) claim, a federal appellate court has ruled in a non-precedential opinion, because there was some ambiguity as to the ground upon which the lower court based its judgment. The Third Circuit vacated and remanded its previous order affirming a trial court’s decision that an individual was barred by collateral estoppel from re-litigating a TCPA claim in the federal district court in New Jersey against a telemarketer for making a phone call directed toward the individual’s roommate on behalf of Bank of America (BoA), which allegedly involved a prerecorded advertisement for a BOA credit card. The trial court determined that the claim was identical to a claim already litigated by the individual in a previous action in a federal district court in New York. Leyse v. Bank of America, National Association (3rd Cir.) is at ¶100-644.

Retailer’s email request may have violated Callifornia Credit Card Act
In a proposed class action, a consumer stated a valid claim under California’s Song-Beverly Credit Card Act of 1974 (Cal. Act) by alleging that a retailer violated the Cal. Act when it requested the consumer’s email address to send him an electronic receipt in connection with the consumer’s credit card transaction for purchases made at the retailer’s store. In allowing the consumer’s lawsuit to proceed, the U.S. District Court for the Eastern District of California also determined that: an email address constitutes “personal identification information” under the Cal. Act; more factual development of the case was needed to ultimately determine whether the retailer violated the Cal. Act; and the retailer did not meet its burden to show that the consumer’s state law claim was preempted by federal law. The story on Capp v. Nordstrom, Inc. (E.D. Cal.) appears in Privacy Extra, Oct. 31, 2013.

State Law Update

California: “AB 370 makes the invisible practice of online tracking more transparent to consumers, and I applaud the Governor for signing this important bill,” said Attorney General Kamala D. Harris, sponsor of the legislation, upon its Sept. 27, 2013, signing by Governor Jerry Brown. Although the new law, which amends the California Online Privacy Protection Act, does not prohibit tracking, it requires commercial websites and online servicers to disclose how they respond to “do not track” signals. This story appears in Report No. 148, Oct. 16, 2013.

California: An amendment to the California Consumer Credit Reporting Agencies Act makes it unlawful also for a consumer credit reporting agency (CRA) to dissuade or attempt to dissuade a user from furnishing a copy of the report upon a consumer's request when the user takes adverse action against the consumer based upon the report. The measure also authorizes the Attorney General, among others, to bring a civil action, for a civil penalty not to exceed $5,000, against any CRA for a violation of these provisions. This story appears in Report No. 148, Oct. 16, 2013.

California: An amendment to California’s information privacy breach notice law expands the disclosure requirement to apply to a breach of computerized data that is owned or licensed by a local agency. Existing law requires any state office, officer, or executive agency that owns or licenses computerized data that includes personal information to disclose any breach of the security of the system following discovery or notification of the breach in the security of the data to any resident of California whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person. This story appears in Report 148, Oct. 16, 2013.