Consumer Financial Services Alert - April 1, 2014

The CFPB released a report summarizing the recent complaints of consumers in connection with debt collection practices. The report covered complaints that the CFPB received from July 10, 2013 through December 31, 2013. The report notes that the top three complaints related to attempts to collect debts not owed, communication tactics and taking or threatening to take illegal action. For example, many consumers complained about being called about someone else’s debt. The report also notes that the CFPB followed up directly with debt collectors on the complaints, referred the complaints to other regulatory agencies, found the complaints to be incomplete or the complaints are pending with the consumer or the CFPB. The report also highlights consumer complaints that were submitted to the FTC. The top three categories submitted to the FTC include repeated calls to consumers, misrepresentations of the debt owed and false threats of illegal or unintended acts.

The CFPB’s Office of Research released a report, CFPB Data Point: Payday Lending, analyzing consumer use of payday loans. The Office of Research obtained data from storefront payday lenders through the supervisory process. This was the same data used by the CFPB in its report issued on its initial findings on payday loans and deposit advance products (see April 30, 2013 Alert). The report explains the CFPB’s findings with respect to loan sequence durations, loan sizes and amortization and loan usage. According to the report, over 80% of the payday loans surveyed were rolled over or renewed within 14 days. The report also found that 15% of new payday loans were followed by a loan sequence at least 10 loans long and that 50% of all loans are in a sequence at least 10 loans long. The report notes that less than 20% of borrowers surveyed had reductions in principal amounts of their loans between the first and last loan of a sequence. Moreover, monthly borrowers were found to be more likely to stay in debt for 11 months or longer. Finally, most borrowing involved multiple renewals of the initial payday loan, as opposed to having “multiple distinct borrowing episodes.”

Collectively, the FDIC, the OCC, FRB, CFPB, NCUA and FHFA issued a proposed rule establishing the minimum requirements for mortgage appraisal management companies. An appraisal management company is generally an entity that serves as an intermediary between appraisers and lenders and provides appraisal management services. Section 1473 of the Dodd-Frank Act established minimum requirements to be applied by state regulators in the registration and supervision of appraisal management companies. Section 1473 also created the appraisal management company national registry. The proposed rule will require appraisal management companies to have systems in place to ensure that only state-certified or licensed appraisers perform appraisals, that the appraisers have the requisite education, expertise and experience, follow the appraisal independence requirements in the Truth in Lending Act and comply with Uniform Standards of Professional Appraisal Practice. The proposed rule will also require states to report to the Financial Institutions Examination Council any information required by the FFIEC to administer the newly created appraisal management company national registry. Of note, appraisal management companies that are owned and controlled by subsidiaries of an insured depository institution or an insured credit union and regulated by a federal banking regulator are not required to register with a state. However, these federally regulated appraisal management companies are subject to the same minimum requirements as those that are not regulated by a federal banking regulator.

Both the FDIC and the OCC also proposed to rescind the appraisal regulations issued by the former OTS. Comments on the proposed rule are due 60 days from publication in the federal register.

Adopting a magistrate judge’s report and recommendations, the United States District for the District of Nevada held that the FTC has enforcement jurisdiction over tribal payday lenders. The FTC filed a complaint against defendants alleging that they violated the Federal Trade Commission Act, the Truth in Lending Act, and the Electronic Funds Transfer Act in connection with offering of payday lending and the collection of the payday loans. Defendants argued that the FTC lacked authority to bring the action because they were “arms of an Indian tribe, employees of an Indian tribe, or businesses associated with arms of Indian tribes.” The FTC moved for summary judgment. The magistrate judge issued a report recommending that the case proceed on two of the FTC’s four claims. The FTC already prevailed on summary judgment on its other two claims: (1) deceptive acts and practices in online advertisements that did not accurately state the customer’s total amount of payments on the loan and failure to disclose (except in fine print) an automatic “renewal” loan from which the borrower would have to opt out; and (2) the loan disclosure was ambiguous and therefore did not clearly and conspicuously reflect the terms of the credit transaction in violation of TILA.

In adopting the magistrate judge’s report and recommendation, the Court held that it was the lender’s burden, not the FTC’s, to prove that an exception to the agency’s general regulatory and enforcement authority warranted a finding excluding the lender from regulation. The Court also held that the FTC Act is a law of “general applicability” that, because it does not otherwise unduly impinge on tribal rights and because there was no legislative intent to exclude tribes from the FTC’s jurisdiction, applies with full force to tribal lenders. The Court rejected the lender’s request to apply “Indian canons of construction in determining whether a federal law applies to” a tribal lender, because the FTC’s case does not implicate any tribe’s treaties or sovereignty. Both the FTC and the CFPB (see October 1, 2013 Alert) have targeted the payday lending practices of tribal lenders.

The Massachusetts Division of Banks proposed amendments to current regulations that would create a safe harbor from regulations that impose restrictions on refinancing home loans for qualified mortgage loans. The regulation prohibits lenders from knowingly refinancing a home loan that was consummated within the prior 60 months unless the refinancing is in the borrower’s interest. The proposed amendments provide that a home loan will be in compliance with the regulation if it is a qualified mortgage as defined by the CFPB’s ability-to-repay and qualified mortgage rule.

The Division of Banks also scheduled a public hearing on April 9, 2014 to discuss the proposed amendments.