Consumer Financial Services Alert - March 20, 2012 March 20, 2012
In This Issue

CFPB Issues S.A.F.E. Act Examination Procedures

The CFPB issued Examination Procedures for the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which set forth the requirements of the SAFE Act and the federal registration regulations.  The SAFE Act requires that federal registration and state licensing and registration systems for residential mortgage loan originators be accomplished through the same online registration system, the Nationwide Mortgage Licensing System and Registry. Click here for the Examination Procedures.

CFPB Launches Auto and Installment Loan Complaint System

The CFPB has launched the first phase of its new auto and other installment loans complaint system, with a focus on loans made by large banks.  The CFPB will forward all complaints to the appropriate financial institutions for review and resolution.  Presently, complaints against nonbanks and small banks will be forwarded to another federal agency.  Click here for the CFPB press release and here for the online complaint system.

CFPB and FTC Begin Sharing Consumer Complaints

The CFPB began sharing consumer complaints with the FTC and other law enforcement personnel through the FTC’s Consumer Sentinel, an online database of consumer complaints only available to law enforcement personnel.  This step was taken pursuant to section 1024 of the Dodd-Frank Act, which requires the CFPB to share information with the FTC and other state and federal agencies. Click here for the CFPB press release.

New Rules Planned for Force-Placed Insurance and ARM Disclosures

In his speech at the annual National Association of Attorneys General meeting, Richard Cordray announced that the CFPB plans to issue mortgage servicing rules within the next 12 months to impose new limits on force-placed insurance products, to require servicers to simplify and improve the billing statements provided to consumers and to require additional disclosures for consumers on adjustable rate mortgages.  As to the latter, Mr. Cordray further explained that the new rules will require servicers to notify consumers months ahead of their first interest rate adjustment that their interest rate will increase and also disclose the new monthly payment amount and any available options to mitigate the higher rate (e.g., refinancing or renegotiation of the loan terms).  Click here for a link to Richard Cordray’s speech.

FDIC Issues Guide for Consumers on Credit, Debit and Prepaid Cards

The FDIC issued a guide to help consumers understand the differences between debit, credit and prepaid cards. The guide provides information on the type of protections available to consumers for each type of card, including the required disclosures, and notice of a change in terms and interest rate and fee limits.  Click here for a link to the guide.

Ninth Circuit Rules Parens Patriae Suit Not a “Mass Action” under the Class Action Fairness Act

In an issue of first impression, the Ninth Circuit recently remanded a parens patriae deceptive practices suit, brought under the Class Action Fairness Act of 2006, back to state court.  The State of Nevada, through its Attorney General, filed a parens patriae suit against the defendant, claiming that the defendant mislead consumers about the terms and operations of its home mortgage modification and foreclosure processes in violation of the Nevada Deceptive Trade Practices Act.  The Ninth Circuit held that the parens patriae action was not a “mass action” – a civil action where the monetary relief claims of 100 or more persons may be tried jointly because common questions of law and fact exist and the claims allege $75,000 or more in damages – under CAFA because the real party-in-interest was the State of Nevada, thus failing to meet CAFA’s numerosity requirement.   The court also held that parens patriae actions are not removable under CAFA.  The Ninth Circuit is the third federal Court of Appeals to address the issue of whether parens patriae suits are removable under CAFA.  Click here for the opinion.

FTC Reaches $2.5 Million Settlement with Debt Collector

The FTC reached a $2.5 million settlement agreement and consent decree with debt buyer, Asset Acceptance, LLC, for violations of the federal Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Federal Trade Commission Act.  The FTC complaint alleged that although the statute of limitations had passed on some of the accounts Asset Acceptance had purchased from credit originators, Asset Acceptance continued to collect on the accounts, misrepresenting to consumers its ability to collect on time-barred debts.  The FDCPA prohibits debt collectors from threatening to take any action that cannot be legally taken and from using deceptive tactics in the collection of debt.  The consent order contains a number of requirements imposed on Asset Acceptance, including providing a disclosure to consumers that it will not file a lawsuit on a debt when the statute of limitations has run.  Click here for the Consent Decree.

Seventh Circuit Holds HAMP-based State Law Claims Not Preempted

The Seventh Circuit ruled that state common law and statutory claims based on a failure to modify under the federal Home Affordability Modification Program are not preempted.  Plaintiff alleged that defendant promised to modify her loan if she qualified under HAMP, but then refused to grant the modification, even though her loan met HAMP requirements.  The Seventh Circuit held that these state law claims were not field preempted by the Home Owners’ Loan Act because the claims did not concern state licensing and regulation, but rather were claims of general applicability.  The Court also refused to find conflict preemption, on the ground that the claims did not seek to modify or otherwise affect servicers’ substantive duties under HAMP.  Click here for the opinion.

National Mortgage Settlement Terms Revealed

The DOJ has released the final terms of the mortgage settlement agreement reached among the federal government, state attorneys general and the five mortgage servicers.  The terms include new servicing standards, such as requirements to appoint a “single point of contact” for borrowers, and to establish loan and foreclosure documentation training and procedures to prevent “dual tracking” – continuing the foreclosure process on a borrower who is simultaneously seeking a loan modification; and incentives for providing consumers with alternative foreclosure options. Click here for a link to the consent judgments and here for the National Mortgage Settlement website.

District Court Holds State Consumer Protection Act Not Preempted by the Dodd-Frank Act

The District Court for the Northern District of West Virginia reversed a bankruptcy court decision, holding that West Virginia’s consumer protection statute is not a “state consumer financial law” subject to preemption under the Dodd-Frank Act.  The plaintiffs alleged that defendant violated the Consumer Credit and Protection Act by continuing its collection calls after being informed by bankruptcy counsel that plaintiffs had retained counsel.

The Court noted that the Dodd-Frank Act revamped preemption under the National Bank Act and provides three instances in which state consumer financial laws are preempted: (1) discriminatory effect on national banks compared with the effect of the law on a state-chartered bank; (2) prevention or significant interference with a national bank’s exercise of its powers; and (3) preemption by a federal law. The Court held that the Consumer Credit and Protection Act is not preempted by the National Bank Act because it “was not designated to regulate financial transactions or accounts, but rather to protect West Virginia residents from unfair or abusive collection practices.” Click here for the opinion.