On May 7, the CFPB issued a notice of proposed rulemaking (NPRM) to implement the Fair Debt Collection Practices Act (FDCPA). According to the CFPB, the NPRM would provide consumers with clear protections against harassment by debt collectors and straightforward options to address or dispute debts. Among other things, the NPRM would:
- Establish a clear, bright-line rule limiting call attempts and telephone conversations: The NPRM generally would limit debt collectors to no more than seven attempts by telephone per week to reach a consumer about a specific debt. Once a telephone conversation between the debt collector and consumer takes place, the debt collector must wait at least a week before calling the consumer again.
- Clarify consumer protection requirements for certain consumer-facing debt collection disclosures: The NPRM would require debt collectors to send consumers a disclosure with certain information about the debt and related consumer protections. This information would include, for example, an itemization of the debt and plain-language information about how a consumer may respond to a collection attempt, including by disputing the debt. The proposal would require the disclosure to include a “tear-off” that consumers could send back to the debt collector to respond to the collection attempt.
- Clarify how debt collectors can communicate with consumers: The NPRM would clarify how debt collectors may lawfully use newer communication technologies, such as voicemails, emails and text messages, to communicate with consumers and would protect consumers who do not wish to receive such communications by, among other things, allowing them to unsubscribe to future communications through these methods. The NPRM would also clarify how collectors may provide required disclosures electronically. In addition, if consumers want to limit ways debt collectors contact them, for example at a specific telephone number, while they are at work, or during certain hours, the rule clarifies how consumers may easily do so.
- Prohibit suits and threats of suit on time-barred debts and require communication before credit reporting: The NPRM would prohibit a debt collector from suing or threatening to sue a consumer to collect a debt if the debt collector knows or should know that the statute of limitations has expired. The NPRM also would prohibit a debt collector from furnishing information about a debt to a consumer reporting agency unless the debt collector has communicated about the debt to the consumer, such as by sending the consumer a letter.
Comments on the NPRM are due 90 days after publication in The Federal Register.
On May 2, the CFPB issued a proposal to raise the coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under Home Mortgage Disclosure Act (HMDA) rules. This proposal would provide relief to smaller lenders under HMDA’s data reporting requirements, and would clarify partial exemptions from certain HMDA requirements. For closed-end mortgage loans, the proposal offers two alternatives that would permanently increase the coverage threshold from 25 to either 50 or 100 loans. For open-end lines of credit, the proposal would extend the current temporary coverage threshold of 500 open-end lines of credit. Once that temporary extension expires, the threshold would be 200 open-end lines of credit. Comments to the proposed rule are due 30 days after the rule is published in the Federal Register.
The CFPB has issued a fact sheet designed to assist lenders in determining when the TILA-RESPA integrated disclosures are required for mortgage assumptions. Through both a flowchart and a narrative discussion, the fact sheet addresses whether disclosures are required for a transaction (i) in which a new consumer is being added or substituted as an obligor on an existing consumer credit transaction; (ii) that is a closed-end consumer credit transaction secured by real property or a cooperative unit; and (iii) that is not a reverse mortgage subject to 12 CFR 1026.33. In addition, the fact sheet discusses the specific factors in determining an “assumption” as defined in Regulation Z. The CFPB makes clear that the flowchart and narrative are meant to assist in these determinations and should not be a substitute for reviewing the Truth in Lending Act, the Real Estate Settlement Procedures Act, Regulation Z, or its official interpretations, which are the definitive sources of information regarding their requirements.
On May 2, the Federal Reserve Board published an advanced notice of proposed rulemaking requesting comment on whether it should propose amendments to Regulation EE to include new entities in the definition of “financial institution” in Section 402 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), so that such entities would be covered by the FDICIA’s netting provisions. The Federal Reserve Board proposes to extend the definition of “financial institution” to cover entities whereby applicability of the FDICIA would reduce systemic risk and increase efficiency in the financial markets. This extended scope would cover certain swap dealers, swap participants, nonbank systemically important financial institutions, financial market utilities, foreign banks, bridge institutions, and Federal Reserve Banks. The rulemaking proposal also includes a proposal to clarify that, in the context of consolidated legal entities, the activities-based testing under Regulation EE would cover the aggregate financial contracts of the consolidated persons on a 15-month lookback basis. Comments must be received on or before July 1, 2019.
On May 2, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published “A Framework for OFAC Compliance Commitments,” which outlines the five essential components of a sanctions compliance program (SCP) and includes discussion in its appendix of several root causes of apparent violations of the sanctions programs that OFAC administers. This guidebook is intended to assist organizations subject to U.S. jurisdiction, as well as foreign entities that do business in or with the United States or U.S. persons or using U.S.-origin goods or services, in developing, implementing and routinely updating their SCPs. The five core components of an SCP identified in the guidance are (1) management commitment, (2) risk assessment, (3) internal controls, (4) testing and auditing, and (5) training. Each is accompanied by a list of key aspects that should be addressed in an effective SCP. The appendix discussing root causes of SCP breakdowns or deficiencies, informed by prior OFAC administrative actions, includes the following: (1) lack of a formal OFAC SCP; (2) misinterpreting, or failing to understand the applicability of, OFAC’s regulations; (3) facilitating transactions by non-U.S. persons (including through or by overseas subsidiaries or affiliates); (4) exporting or re-exporting U.S.-origin goods, technology or services to OFAC-sanctioned persons or countries; (5) utilizing the U.S. financial system, or processing payments to or through U.S. financial institutions, for commercial transactions involving OFAC-sanctioned persons or countries; (6) sanctions screening software or filter faults; (7) improper due diligence on customers’ clients (e.g., ownership, business dealings, etc.); (8) decentralized compliance functions and inconsistent application of an SCP; (9) utilizing nonstandard payment or commercial practices; and (10) individual liability.
The OCC opened a 45-day public comment period on a proposed Innovation Pilot Program. The program would be voluntary and designed to provide eligible entities with regulatory input early in the testing of innovative activities that could present significant opportunities or benefits to consumers, businesses, financial institutions, and communities. Entities eligible for the proposed program would be OCC-supervised financial institutions, including those engaging a third party to offer the innovative product, service, or process. Entities may propose a pilot individually or as a collaborative effort such as a consortium or utility. Comments on the proposed program should be submitted by June 14, 2019.
On April 23, the Federal Reserve Board invited public comment on a notice of proposed rulemaking that would revise its regulations related to determinations of whether a company (an investor) exercises a “controlling influence” over another company (a target) for purposes of the Bank Holding Company Act (BHCA) or the Home Owners’ Loan Act (HOLA). Whether an investor may exercise a controlling influence over a target is relevant when the investor does not otherwise have control for purposes of the BHCA, such as by owning or controlling 25% or more of a class of the target’s voting securities. For an in-depth look at the proposal, read the client alert issued by Goodwin’s Financial Industry group.
Enforcement & Litigation
On May 2, a lawsuit intended to block the OCC’s proposed Fintech Charter filed by the New York Department of Financial Services (NYDFS) in September 2018 was allowed to proceed. As previously reported in the Roundup, the lawsuit, which is NYDFS’ second, seeks to block the OCC from issuing special-purpose national bank charters from fintech companies that do not accept deposits (Fintech Charter). Although the OCC has not yet received an application for a Fintech Charter, a federal judge in the Southern District of New York nonetheless determined that NYDFS’ prudential and constitutional claims are ripe for adjudication and denied the OCC’s motion to dismiss NYDFS’ complaint with respect to two of three counts. Observing the OCC’s investments of resources and time, public statements, and active discussions with potential Fintech Charter applicants, the court determined that the alleged threats posed by the Fintech Charter to New York’s comprehensive regulatory and assessment system for nondepository fintech companies implicated the type of sovereign and direct interests common in cases where states have standing to contest agency action. The court granted dismissal of NYDFS’ third count, a Tenth Amendment claim, for failure to state a claim for relief.
On May 1, the CFPB announced a $3.9 million settlement with a student loan servicer, resolving allegations that the servicer engaged in unfair acts or practices in violation of the Consumer Financial Protection Act. Read the Enforcement Watch blog post.
On May 2, the CFPB filed suit in the District of Utah against defendants operating two of the largest credit repair companies in the country, alleging that the companies engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act and Telemarketing Sales Rule (TSR). Read the Enforcement Watch blog post.
On April 5, the Eleventh Circuit Court of Appeals issued a decision holding that a plaintiff asserted a plausible claim under a provision of the Fair Debt Collection Practices Act (FDCPA) that forbids debt collectors from using “false, deceptive, or misleading representation[s] or means in connection with the collection of any debt,” even though the debt collector did not expressly “threaten to sue on a time-barred debt.” The court’s decision in Holzman v. Malcolm S. Gerald & Associates, Inc., et al., No. 16-16511 (11th Cir. April 5, 2019), situates the Eleventh Circuit alongside the Fifth, Sixth, Seventh, and Third Circuits, which have similarly concluded that violations of section 1692e of the FDCPA do not necessarily require express threats of litigation. Read the LenderLaw Watch blog post.
Join the New Hampshire Bankers Association and Vermont Bankers Association, Inc. at this year’s annual Spring CEO/President/Senior Management and CFO Conference in Whitefield, New Hampshire. Goodwin is a sponsor. Please visit the event website for more information.
Experience three days packed with dynamic speakers and lively discussions about the banking industry, and an inspirational program at the Pennsylvania Bankers Association Annual Convention. Goodwin will sponsor this event. For more information, please visit the event website.