Friday, April 29, 2016

CFPB Monthly Complaint Report Turns its Attention Back to Mortgage Servicing

The CFPB issued its monthly report of consumer complaints this week for the month of March 2016. The report is a high level snapshot of trends in consumer complaints and provides a summary of the volume of complaints by product category, by company and by state. Additionally, each month it highlights a product type and a geographic area. This month’s report highlights mortgage product complaints and provides helpful insight to mortgage lenders and servicers regarding complaints which appear to be of import to the CFPB. 

Each month, the Report breaks down complaint volume by product looking at a three month average and comparing the same to 2015. For the tenth consecutive month, the Report indicates that the three products yielding the highest volume of complaints were debt collection, mortgage and credit reporting. The Report reflects that mortgage complaints showed a month over month percentage increase of 13% in March, 2016. In its press release, Cordray states that “[t]oday’s report shows that consumers are still running into too many dead ends and obstacles in resolving issues with their mortgage servicer. The Bureau will continue to press to make sure that people can get the right information and the timely help they need.”

Mortgage lenders and servicers should pay close attention to this month’s report as it highlights what are likely to be points of emphasis with regulators in upcoming examinations – particularly, servicing transitions and effective loss mitigation programs. 
  • Over half of the consumers submitting mortgage complaints in the past month complain about problems that occur when they are unable to make their payments, particularly with loan modifications and foreclosures. Consumers complained about difficulties in the loss mitigation processes and particularly, that the loan mitigation review process is prolonged by repeated requests to submit the same documentation and a lack of responsiveness from their single point of contact. 
  • Consumers also complained they received conflicting and confusing foreclosure notifications while undergoing a loss mitigation assistance review. Consumers also complained about problems they incurred during the transition from one servicer to another including not being properly information of the transfer and payments made to either the prior or current servicer around the time of transfer not being properly credited. Consumers also noted that issues often arose with their escrow accounts around the time of transfer.
  • A number of consumers also complained about payments not being accepted or not being applied as intended, particularly during loss mitigation.
While all of these complaints have to be viewed from an objective stand point, they do suggest that mortgage lenders and servicers need to focus on their compliance management systems and processes for upcoming examinations, particularly with respect to loss mitigation and mortgage servicing transitions.

Tuesday, April 26, 2016

Guest Post: CFPB Penalizes Another Collection Law Firm

BY: Jerry T. Myers
April 26, 2016

On April 25, 2016 the Consumer Financial Protection Bureau (CFPB) issued its latest consent order against a law firm that specializes in consumer debt collection. The April 25 order is against Pressler & Pressler, a New Jersey law firm. A similar consent order was issued on December 28, 2015 against Frederick J. Hanna & Associates, a Georgia law firm. In both orders, the CFPB highlighted what it deems to be unfair and deceptive practices undertaken by the firms to collect consumer debts. 

The focus in both of the consent orders is on the collection activity the law firms performed on behalf of their clients who purchase defaulted consumer debts. The CFPB claimed in both situations that the debt purchasers and the law firms attempted to collect debts without first making a sufficient review of loan documents and account statements to confirm that the debts were actually owed. This failure to review, in the estimation of the CFPB, led the law firms to attempt collection of debts that were not owed. In response, the CFPB assessed a $3.1 penalty against the Hanna firm and a $1 million penalty against the Pressler firm.

During the review periods, both the Hanna and Pressler law firms initiated litigation on thousands of consumer accounts each month. Both firms relied heavily on staff to review account data and to perform the necessary scrubs to eliminate bankrupt or deceased accounts and to confirm consumer addresses. The CFPB asserted in both enforcement actions that the firms’ attorneys were not meaningfully involved in reviewing accounts before initiating litigation. The CFPB found this lack of meaningful attorney involvement to violate both the Fair Debt Collection Practices Act and the Dodd Frank Act.
Both of the consent orders specify the activities which must be undertaken by the firms’ attorneys to demonstrate that they are meaningfully involved in the cases they file. The firms must:
  • Have in their possession, before sending a demand letter or making a collection call, a charge-off statement, and if the case is based on a breach of contract, either account statements from the creditor indicating actual use of the account or a copy of the account/loan agreement signed by the consumer. If the account is owned by a debt buyer, the attorney must also have evidence of the chain of title to the account. 
  • Before filing suit, the attorney of record for the case must log into the consumer’s account in the firm’s case management system, creating a record showing the attorney’s review of the account. In addition to reviewing the account level documentation, the attorney must also confirm that the case is being filed within the statute of limitations, that the consumer has not filed bankruptcy, that the consumer’s address has been confirmed using a historically reliable and accurate source, and that the case is being filed in a proper venue.
Additionally, both consent orders prohibit the attorneys’ use of any affidavits supplied by their clients which the attorney knows or should know may be defective. Examples of defective affidavits include those in which the affiant falsely claims personal knowledge of the character, amount, or legal status of a debt; those in which the affiant falsely claims to have performed account level document review; and those affidavits which were not actually executed in the presence of a notary.

As with the Hanna order, the Pressler consent order is only binding on the Pressler law firm. It contains guidance, however, for all law firms who collect consumer debt. Aspects of this consent order will also likely appear in the debt collection rules expected soon from the CFPB.

The Pressler consent order confirms two key directives from the CFPB’s consent order in the Hanna case. First, collection law firms must be familiar with their clients’ processes for executing affidavits. Second, they must be able to demonstrate that their attorneys are actually involved in the review of documents used in support of litigation.

Both orders also require that attorneys retain final approval and ultimate oversight of all processes followed by their staff. Attorneys must also have final approval for all letter and pleading templates used by the firm in prosecuting their cases. While attorneys do not have to personally perform every step involved in the prosecution of their cases, these two consent orders make it clear that they must be involved in the key decisions arising in their cases.

Jerry Myers is the managing partner of the Smith Debnam law firm in Raleigh, NC. Jerry is certified by the American Board of Certification as a Specialist in the field of Creditors Rights law. Jerry is a past President of the Commercial Law League of America and was the first President of the North Carolina Creditors Bar Association. Jerry has practiced in the Creditors Rights arena for 30 years.

Monday, April 25, 2016

Submission of Credit Card Agreements Resume under CARD Act

A year ago, the CFPB temporarily suspended card issuers' obligations to submit their credit card agreements quarterly to the CFPB.  The stated purpose of the rule was to reduce the burden on the CFPB while it works to develop a more efficient electronic submission system.  The suspension has now expired and the CFPB has provided notice to card issuers to resume submitting their currently-offered credit card agreements to the CFPB on May 2, 2016 (the first business day after April 30th).  Regulation Z requires card issuers to submit their currently-offered agreements "in the form and manner specified by the Bureau."  Card issuers' obligation to post currently offered credit card agreements on their publicly available website was not affected by the suspension.  

In other news and perhaps related to the roll out of the CFPB's new electronic submission system, the CFPB rolled out its new website upgrades on April 22, 2016.

Friday, April 22, 2016

Seventh Circuit Holds Debt Buyer’s Feet to the Fire for its Attorney’s Miscues

As a general rule, a principal may only be held vicariously liable for the acts of its agent where it had actual control over the conduct but what if the principal is a debt buyer and its attorneys violate the FDCPA? A recent opinion by the Seventh Circuit holds that debt buyers are strictly liable for the FDCPA violations of their attorneys and other vendors.  In Janetos v. Fulton Friedman & Gullace, LLP, a debt buyer hired a law firm to collect on accounts where the debt buyer had already obtained a judgment.  The initial demand letters sent out by the law firm did not comply with 15 U.S.C. §1692g(a)(2) in that the failed to clearly identify the current creditor or owner of the debt.   The consumers filed suit against both the law firm and the debt buyer (current creditor) under the FDCPA and alleged that the debt buyer was vicariously liable for the acts of its lawyers. 

The debt buyer contended that it could not be held vicariously liable for the letters the law firm drafted and sent.  The court disagreed and in doing so joins the Ninth and Third Circuits in holding that because the debt buyer was itself a debt collector subject to the FDCPA, it is responsible for FDCPA violations committed by others acting on its behalf.  Janetos v. Fulton Friedman & Gullace, LLP, C.A. No. 15-1859, 2016 U.S. App. LEXIS 6361, *18 (7TH Cir. Apr. 7, 2016); see also Pollice v. National Tax Funding, L.P., 225 F.3d 379, 404-06 (3d Cir. 2000); Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1516 (9th Cir. 1994).  According to the court, “[w]e think it is fair and consistent with the Act to require a debt collector who is independently obliged to comply with the Act to monitor the actions of those it enlists to collect debts on its behalf.” Id. at *19.  The opinion is troublesome in that the court expressly rejects any argument requiring a show of control by the debt collector over the specific activity alleged to violate the FDCPA.  It therefore appears that, at least in the Seventh Circuit, debt buyers will be held strictly liable for the FDCPA actions of their attorneys and other vendors.

Thursday, April 21, 2016

District Court Takes on Electronic Dispute Options under the FDCPA

A single page collection letter recently gave the Southern District of Illinois the opportunity to address a wide range of issues including alleged threats of litigation and the use of a website portal for debt validation requests.  In Blanchard v. North American Credit Services, the initial demand letter offered the consumer “the chance to pay what you owe voluntarily by sending payment, or using our online payment process.”  The letter also contained conflicting information as to the address to which correspondence should be addressed, stating at the top of the letter not to send correspondence to a particular PO Box while at the bottom of the letter listing the same address for correspondence.  Blanchard v. North American Credit Services, C.A. No. 15-1295-DRH (S.D. Ill.) at Dkt. No. 1.  To further complicate matters, the letter, after providing debt validation language which mirrored 15 U.S.C. §1692g’s validation notice requirements, then allowed consumers to dispute the debt by either so stating in the comments section of the collection agency’s web page or sending the dispute to the agency at a second PO Box.  The consumer filed suit under the FDCPA asserting two issues with the language of the letter. First, the consumer complained that the opportunity to pay voluntarily was a veiled threat of suit and violated section 1692e. Secondly, the consumer raised concerns with the conflicting information provided as to where to direct correspondence and where to register disputes, asserting that the same was confusing and overshadowed the validation notice.  The collection agency moved to dismiss the complaint contending that the complaint failed to state a claim under the FDCPA.  The court agreed.

The court reviewed the language offering the consumer a chance to pay voluntarily as being, at most, puffery and held that such statements are allowed under the FDCPA since “it is perfectly obvious to even the dimmest debt collector would very much like him to pay the amount demanded straight off, sparing the debt collector any further expense.”  Blanchard, C.A. No. 15-1295-DRH,  2016 U.S. Dist. LEXIS 48548 at *9 (S.D. Il. Apr. 11, 2016) quoting Taylor v. Cavalry Inv., L.L.C., 365 F. 3d 572, 575-576 (7th Cir. 2004).  The court seemed further swayed by the fact that the complaint did not explain or even mention how the statement was false or misleading.

Moving on to the conflicting statements as to where correspondence could be sent, the court disagreed with the consumer that the conflicting statements overshadowed the validation notice of Section 1692g because the letter presents “a clear path to provide a written dispute” by providing the consumer with two options to notify the debt collector of his dispute as required by Section 1692g(b).  Moreover, the court was not swayed that the option of submitting comments to the debt collector’s website circumvented the requirement of section 1692g(b) that the notification be provided in writing.  The court relied upon the Black Law Dictionary definition of “writing” to include electronic communications.  By doing so, the court essentially blessed the website portal option. 

The most interesting aspect of the case, and the one for debt collectors to ponder, is whether website portals are a viable option for submitting section 1692g(b) disputes.  As technology continues to advance, I anticipate more companies will begin to offer this option – after all, the CFPB has a complaint portal!  Having said that, a website portal alone would most likely be deemed insufficient as it arguably would leave certain consumers without a means to dispute (assuming they have no access to the internet).  For debt collectors contemplating use of an electronic dispute portal, this opinion provides some support for the validity of electronic submissions in tandem with traditional avenues of submission.

Wednesday, April 20, 2016

CFPB Issues Annual Report on Consumer Complaints: What the Mortgage Industry Should Know

Since it opened its doors in 2011, the CFPB has accepted consumer complaints on a variety of consumer products. Beginning with credit card complaints in 2011, the CFPB has expanded its complaint portal to accept complaints on debt collection, credit reporting, mortgage, bank accounts and services, student loans, pay day loans, prepaid cards and other products. On April 1, the CFPB issued an Annual Report synthesizing consumer complaints in 2015 and the CFPB’s response. Here are the important takeaways for the mortgage industry:
The Good News? The good news for the mortgage industry is that consumer complaints showed a slight decrease in 2015 when compared to 2014. In 2014, mortgage complaints comprised 20% of all complaints received by the CFPB (51,200 in total). In 2015, that percentage decreased to 19% (or 50,800). The slight decrease allowed credit reporting to jump into second place for the most complaints in 2015.  
The Bad News? Nine percent of the consumer mortgage complaints handled by the CFPB were referred to other regulatory agencies for further investigation.
Problems When Unable to Pay. As suggested in prior posts, the leading complaint category for mortgage involves problems that arise when the consumer is unable to pay. This category encompasses loan modification, collection and foreclosure issues and it shouldn’t come as a surprise to anyone that 43% of all mortgage complaints in 2015 were placed in this category. The mortgage industry should pay close attention to these issues and review their Compliance Management Systems to insure compliance with RESPA and Regulation X as litigation continues to increase in line with the concerns expressed by consumers below.
  • Loan Modification Concerns. Particularly, the Report notes that consumers complain about delays and ambiguity in the review of their modification applications. Complaints include:
    •  Failure to be included for all available loss mitigation options;
    •  Incorrectly being denied a modification;
    • Terms of the approved modification were unfavorable; and
    • Frequent changes in the single point of contact during review of the loan modification application.
  • Foreclosure Concerns. With respect to foreclosure, three primary areas of concern were identified:
    • Issues with short sales- particularly, the credit reporting of short sales as foreclosures and second lien holders failing to accommodate short sales;
    • Confusion about the fees assessed during foreclosure and particularly, the barrier these fees present to reinstatement; and
    • Concerns with mortgage servicers commencing foreclosure while modification applications remain under review.
  •  Servicing Concerns. Complaints with regard to servicing tend to focus on issues arising during the transfer of the account from one servicer to another.
Making Payments. The second most prevalent mortgage complaint (37% of all mortgage complaints) involves the posting of payments and the management of escrow accounts. Consumers typically complain about the misapplication of payments and the refusal of servicers to accept partial payments. Consumers’ complaint indicate some issues with servicers disbursing tax payments from escrow in a timely manner.

Tuesday, April 19, 2016

CFPB Issues Annual Report on Consumer Complaints: What Debt Collectors Should Know

Since it opened its doors in 2011, the CFPB has accepted consumer complaints on a variety of consumer products. Beginning with credit card complaints in 2011, the CFPB has expanded its complaint portal to accept complaints on debt collection, credit reporting, mortgage, bank accounts and services, student loans, pay day loans, prepaid cards and other products. On April 1, the CFPB issued an Annual Report synthesizing consumer complaints in 2015 and the CFPB’s response. Here are the important takeaways for the debt collection industry:

The Good News. The good news for debt collectors is that while debt collection continues to create the highest volume of complaints, the complaint volume decreased in 2015 when compared to 2014. In 2014, debt collection comprised 35% of all complaints received by the CFPB. In 2015, that percentage decreased to 31%. Additionally, the overall volume of debt collection complaints also decreased. 

Continued Attempts to Collect a Debt that is Not Owed. As we have indicated in prior posts based upon the monthly complaint reports, the leading complaint is regarding attempts to collect a debt that the consumer does not owe. Importantly, the issue is not in the attempt to collect itself, but rather that the calculation of the amount owed is inaccurate (usually pointing to a problem originating with the creditor). The volume of complaints in this category (40% of all debt collection complaints) provides some explanation for regulators’ continued emphasis and expectation that banks and other regulated entities provide and that collection entities (including law firms) demand supporting documentation prior to initiating collection efforts.
Communication Tactics. Complaints regarding communication tactics and particularly telephone collections comprise 18% of all debt collection complaints. Consumers indicate that the calls are too frequent, placed at inconvenient times of the day, placed to third parties or placed to the consumer’s place of employment. Debt collectors should review their policies and procedures to insure compliance with the FDCPA in this respect and also monitor their call volume. We anticipate that the FDCPA will address this issue with some specificity when it publishes its proposed rulemaking.

Lack of Debt Verification. The Report notes that consumers are frustrated with the information they are provided in compliance with section 1692g requests for validation. The Report notes further frustration when collectors simply choose to cease collection efforts in response to validation requests. Again, debt collectors and creditors alike should monitor this area as one likely to be addressed in the proposed rulemaking.  Again, it will likely be tied to an expectation that creditors provide and collection entities require supporting documentation before commencing collection efforts.

Increase in Complaints about Medical Debt Collection. Complaints regarding the collection of medical debt increased in 2015. According to the Report, the complaints were focused around a concern that insurance should have already paid off the debt being collected.

Tuesday, April 12, 2016

Guest Post: 100% Data Certainty and Proxy Methodology

April 8, 2016

By: Mark Dobosz


As reported in an April 8, 2016 article in Auto Finance SubPrime News, Senator Tom Cotton (R-AR), at the Senate Banking Committee’s CFPB hearing on April 7, 2016, took direct aim at CFPB Director Richard Cordray. He pressed the Director with questions about “…how the CFPB determined the amount of consumers harmed by auto financer’s Ally’s practices and how these borrowers would be able to secure restitution from the pool of $80 million included in Ally’s settlement with the bureau.”

The article continued:
Cotton asked, “Did the Department of Justice recommend that you had to opt-in under penalty?’ “We worked with the Justice Department,” Cordray replied “This is routinely required on federal forms,” Cotton retorted.” “We’re not doing something different than the Department of Justice in this case. We’re working together. We’re on the same page,” Cordray said. Cotton then questioned, “Did you personally decline the Department of Justice’s recommendation that a penalty of perjury would be attached to such a statement?” Cordray retorted, “I don’t believe I did. I’d be happy to have my staff follow up with you.
The research methodology to determine those who suffered disparate impact continues to be suspect from a variety of sources and researchers in light of the fact that the veracity of the data continues to remain questionable.

In a panel at the ABA’s Business Law Section Spring Meeting this week, “Is Fair Lending Enforcement Fair For All”, panelists addressed various viewpoints for why the actions are or are not properly addressing discrimination. The discussion included views on the USSC decision on the FHA’s Inclusive Communities, as well as a lively debate centered on the CFPB’s research methodology to determine discrimination.

Reasonable citizens and consumers observing these recent CFPB actions may be concerned that the federal government might not apply fair standards for all citizens equally. Furthermore, a reasonable person might surmise that if the government is going to utilize research to award financial remuneration to individuals based on race, they should use methods which can specifically, effectively and efficiently identify those impacted individuals.

While $80 million to 325,000 yet to be identified specific minority individuals by the CFPB makes great headlines – the average $246.16 payment per person – should be guaranteed by the Bureau to be 100% accurate and not containing any fraudulency through opt-in clauses for penalty of perjury by recipients seeking remuneration.

Accurate methodology matters when claims of discrimination and disparate impact are asserted.


About the Author: Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditor’s rights issues impacting NARCA members. The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible.

Monday, April 11, 2016

Eleventh Circuit Requires Strict Compliance with FDCPA’s Initial Communication Requirements

Collection communications with consumer’s counsel are held to the same standard as those directly with a consumer according to the Eleventh Circuit.  In Bishop v. Ross Earle & Bonan, P.A., the defendant law firm sent a debt collection letter to a consumer in care of his attorney.  The letter omitted the “in writing” language required by section 1692g.  Instead, it provided:

Federal law gives you thirty (30) days after your receipt of this letter, to dispute the validity of the debt or any portion of it.  If you do not dispute it within that period, we will assume it is valid.  If you do dispute the debt, or any portion of it, you must notify us within the said thirty (30) day period and we will, as required by law, obtain and mail to you, proof of the debt.


The consumer filed suit alleging that the letter did not comply with 15 U.S.C. §1692g.  The district court dismissed the lawsuit determining that the Complaint failed to state a claim upon which relief could be granted.  On appeal, the appellate court addressed the following issues of first impression: (a) whether a debt collection letter sent to the consumer’s attorney rather than directly to the consumer is a communication for purposes of the FDCPA; and (b) whether by omitting the “in writing” language required by section 1692g, a debt collector can simply waive the “in writing” requirement and avoid violation of 1692g.  

In reviewing the first issue, the court looked at the requirements of section 1692g to ascertain whether a letter sent to a consumer’s attorney was in fact a “communication” for purposes of the FDCPA.  In determining that the provision applies to indirect communications o the consumer’s attorney, as well as those directly with the consumer, the court relied on the definition of “communication” provided within the FDCPA as including “the conveying of information regarding a debt directly or indirectly to any person through any medium.”  The court therefore concluded that the provisions of section 1692g are triggered by communications with counsel and such communications must include the debt validation language required by section 1692g.

The court additionally rejected the notion that 1692g “gives debt collectors discretion to omit the “in writing” requirement or cure improper notice by claiming waiver.”  In doing so, the court took note that the requirements is couched in terms of “shall” and also pointed out that the consumer’s rights to verification under 1692g(b) are only triggered when a dispute in made in writing, 

The morale of the story for debt collectors is to strictly comply with the language of section 1692g.  Letter violations are easy to prosecute and easy pickings for the consumer bar.