CFPB Monthly Complaint Report Focuses on Credit Card Accounts

The CFPB issued its monthly report on consumer complaints this week. The report is a high level snapshot of trends in consumer complaints. The Report provides a summary of the volume of complaints by product category, by company and by state. Additionally, it highlights a product type. The product “spotlight” rotates monthly. This month’s report highlights credit card account complaints which was last in the “spotlight” in October 2015.

 Complaint Volume by Product

• The three products which yield the highest volume of complaints on a three month average remain debt collection, mortgage and credit reporting;
• A trend worth noting is that the number of debt collection complaints remains almost flat;
• Student loans indicated the highest increase in change from last year– a 62% increase when compared to 2015; and
• Payday loan complaints showed the greatest decrease from last year – a 15% decrease when compared to 2015.

Highlighted Product: Credit Card Accounts

Credit card providers 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 with regard to fair lending concerns, application of payments and assessment of fees and adequate explanation of terms. 

• As was the case when credit cards were last in the spotlight, the most common complaint involves billing disputes. Consumers remain confused as to how and when late fees can be assessed. 16% of all credit card complaints are categorized by the CFPB as involving billing disputes. Specifically:
• According to the Report, consumers complain about how payments are being applied, particularly to accounts where there are multiple balances because of balance transfers, cash advances and deferred interest purchases. The majority of these complaints appear to emanate from confusion about the terms of use.
• Consumers also complain about the application of fees and additional costs associated with their credit cards, particularly the application of late fees.

• The Report also highlights complaints about credit decisions. Both initial credit decisions and servicing changes are frequent subjects of complaints. Specifically, the Report observes concerns with adverse actions and the negative impact that negative items in credit reports have on consumer’s creditworthiness;
• Deferred interest programs also are a source of complaints with consumers stating that the terms of the programs are not adequately explained;
• Another issue highlighted by the CFPB is the concern with credit card accounts being closed without notice due to concerns by the credit card companies as to fraud and identity theft.

So what might the credit card industry expect to see from regulators? Based upon the current complaint trends, the credit card industry is likely to continue to see a continued focus on to their application of credit card payments, as well as scrutiny as to the accuracy of their disclosures regarding special promotions. It would also not be surprising to see examiners scrutinize credit card products in their fair lending examinations based upon the volume of complaints concerning credit decisions.

District Court Opinion Delivers Mixed News on FDCPA Communications

A New York district court recently delivered a mixed bag of news on FDCPA claims involving third party communications.   In Duran v. Midland Credit Management, Inc., 2016 U.S. Dist. LEXIS 85843 (S.D.N.Y. Jun. 30, 2016), a collection letter addressed to the consumer was sent to his brother's address.  According to the complaint, the consumer never resided at the brother’s address, never provided the creditor with the address and never used that address to receive mail.  The plaintiff’s brother opened the letter without the consumer’s consent and as a result, a rift was created between the brothers which the consumer contended caused him emotional distress.  According to the plaintiff, the communication violated the FDCPA, including sections 1692c(b) and 1692c(a)(1) of the FDCPA. 

Section 1692c(b) of the FDCPA generally prohibits debt collectors from communicating with most third parties except with the prior consent of the consumer.  In support of its motion to dismiss, the debt collector pointed to the fact that the letter was properly addressed to the consumer and “plaintiff’s brother only learned of Plaintiff’s alleged debt after he violated federal criminal law by opening an envelope that was not addressed to him.” Id. at *7. The court agreed.


In reviewing the language of section 1692c(b), the court focused on whether the debt collector communicated with the consumer’s brother and the definition of “communicate”.  Turning to the dictionary, the court held that the applicable definition was “to transmit information, thought, or feeling so it is satisfactorily received or understood…This definition implies a degree of intent on the part of the communicator that his communication will be received or understood by another.”  Id. at *8. The court therefore concluded that a debt collector who addresses a sealed envelope to a consumer does not communicate with a third party “in connection with a debt” except to the extent the envelope itself reveals that the mailing is in connection with the collection of a debt.  Simply put,”[i]t would be unreasonable to construe “communicate with” so broadly as to encompass the accidental transmittal of information to an eavesdropper or interceptor.” Id. at *9.

With respect to the consumer’s 1692c(a)(1), the news was not as good for the debt collector and the court denied the motion to dismiss.  There, the consumer asserted the letter violated 1692c(a)(1) because, after previously sending correspondence to the consumer at his correct address, the debt collector sent a letter to the consumer at his brother’s address, an unusual place or place known or which should have been known to be inconvenient to him.  The court found that even if the brother had simply delivered the envelope to plaintiff without opening it, defendant would still have communicated with plaintiff at an unusual or inconvenient place.

The opinion is worth considering, particularly its language regarding “eavesdroppers”.  The court’s analysis of this issue may provide some small foothold for debt collectors – at least in the Southern District of New York- for some inadvertent third party disclosure issues.  In cases where messages are left on cell phones for consumers and inadvertently overheard by third parties, this language  coupled with the heightened expectation of privacy provided to cell phone communications, may be enough to preclude claims under section 1692c(b).

House Passes Budget Bill Containing Restraints on the CFPB

Last week, the House passed its 2017 appropriations bill.  The bill contains a number of provisions which are designed to place additional controls on the CFPB and signals the House’s concerns with the unbridled power currently harnessed by the CFPB.  Specifically:

• The bill funds the CFPB through the annual congressional appropriations process rather than allowing it to make transfers from the Federal Reserve;
• The bill restructures the leadership of the CFPB into a bipartisan five person commission; and
• The bill prohibits the use of funds to regulate pre-dispute arbitration agreements and delays the effective date of any regulation finalized by the Bureau regarding arbitration unless and until the CFPB has fulfilled certain specified reporting requirements.

A Senate Appropriations bill has not yet been passed, but the current Senate bill under consideration does not contain similar restraints on the CFPB.   A final congressional budget is not expected until later this year. 

FDIC Launches Survey Regarding Small Business Lending Practices

The FDIC has launched a web based survey of roughly 2,000 randomly selected FDIC-insured banks regarding their small business lending practices.  This comes on the heals of the CFPB revelation that small business lending is also on their rulemaking agenda.  In May, the CFPB announced that it was in the very early stages of implementing Section 1071 of the Dodd Frank Act which amends the Equal Credit Opportunity Act to require financial institutions to report information concerning credit applications made by women owned, minority owned and small businesses. 

At the end of June, the FDIC issued a press release announcing their survey.  As its  rationale, the FDIC states that “[s]mall business lending is an important way that banks help meet their communities' needs, especially for the many banks that primarily focus on commercial rather than consumer lending…Despite the importance of small businesses to the U.S. economy and the importance of bank lending to small businesses, there is little high quality data on small business lending by banks. The FDIC Small Business Lending Survey (SBLS) is designed to help fill in this information gap.”  The survey also includes questions concerning consumer transactions which are responsive to a Congressional mandate to learn more about bank efforts to bring unbanked individuals into the conventional finance system. Responses to the survey are due August 10^th.

The purpose of the survey is the provide insight into many aspects of small business lending, including nationally representative information on the general characteristics of small business borrowers, the types of credit sought and offered, and the relative importance of small business lending to banks of different sizes, business models and location.  The survey is broken down into six sections; (a) questions concerning the 2015 small business borrowers at the surveyed institution; (b) questions concerning the 2015 total loan originations of the surveyed institution; (c) questions concerning commercial and industrial loan originations of the institution in 2015; (d) questions concerning outstanding commercial and industrial  loans reported on the institutions call report in 2015; (e) questions concerning the small business “commercial and industrial lending competition, practices and applications” for the surveyed institution; and (f) consumer account offerings and policies.

District Court: Request for Insurance Information Does Not Overshadow Required Notices

A district court in New Jersey recently dismissed a consumer’s complaint where the medical collection letter acknowledged the possibility of insurance coverage. In Cruz v. Financial Recoveries, the collection letter included the following provisions:

University Hospital has listed your past due account with this office for collection. To avoid further contact from this office regarding your past due account, return the top portion of this notice with your payment in full. Payments should be made payable to University Hospital and sent to the following address.

University Hospital
P.O. Box 3009
Newark, NJ 07103-0009…

If you have insurance that may pay all or a portion of this debt, that information can be submitted by calling 1-800-220-0260 or by completing the information on the reverse side of this letter and returning the entire letter to this office at Financial Recoveries, PO Box 1388, Mt. Laurel, NJ 08054.

 IMPORTANT CONSUMER NOTICEUnless, within 30 days after receipt of this notice, you dispute the validity of the debt or any portion thereof, we will assume the debt to be valid. If, within 30 days after your receipt of this notice, you notify us in writing that the debt or any portion thereof is disputed, we will obtain a verification of the debt, or if the debt is founded upon a judgment, a copy of any such judgment, and we will mail to you a copy of such verification or judgment. If the original creditor is different from the creditor named above, then upon your written request within 30 days after the receipt of this notice we will provide you with the name and address of the original creditor.

This Company is a debt collector. We are attempting to collect a debt and any information obtained will be used for that purpose.

Cruz v. Fin. Recoveries, 2016 U.S. Dist. LEXIS 83576, *2-3 (D.N.J. June 28, 2016).

The consumer alleged two claims under the FDCPA. First, the plaintiff contended that the letter violated 15 U.S.C. 1692g because the provision as to insurance contradicted or overshadowed the Section 1692g notice requirements. Similarly, because the letter did not comply with section 1692g, the consumer alleged the letter was “false, deceptive and misleading” and violated section 1692e.  

The district court noted at the outset that whether or not the communication overshadows the Section 1692g notice must be evaluated from the perspective of the least sophisticated consumer. The court went on to hold, that “while the standard protects naïve consumers, it also prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care. Even the least sophisticated debtor is bound to read collection notices in their entirety." Cruz at *6, quoting Campuzano-Burgos v. Midland Credit Mgmt., Inc., 550 F.3d 294, 299 (3d Cir. 2008) (internal citations omitted). In determining whether the request for insurance information overshadowed the section 1692g debt validation requirements, the court noted that courts have generally upheld requests for information even if the information is somewhat related to the notion of disputing a debt. 

In reviewing the specific language used by the collection agency in this particular letter, the court held that it was simply a request for information. “[T]he language Defendant's letter uses makes no reference to disputing the debt, only the provision of insurance information related to the debt. The Court finds this to be a meaningful distinction”. Id. at *10. The court further held that because the plaintiff could not prevail on her section 1692g claim, she likewise could not proceed forward under 15 U.S.C. 1692e(10) as the analysis of section 1692g language is generally dispositive of section 1692e claims. The court therefore granted the collection agency’s motion for judgment on the pleadings and dismissed the action.

Professional TCPA Plaintiff Doesn’t Have Standing to Bring Claims

Professional plaintiffs may need to reconsider their business strategy in the wake of the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).  In Stoops v. Wells Fargo Bnak, N.A., a consumer bought and activated at least 35 prepaid cell phones with the hope of capitalizing on wrong number calls.  The plaintiff readily admitted that she purchased the phones for the purpose of filing lawsuits under the TCPA and selected locations in Florida as the assigned locations (and corresponding area codes) “because there is a depression in Florida” where “people would be usually defaulting on their loans or their credit cards”. Stoops, C.A. No. 3:15-83, 2016 U.S. Dist. LEXIS 82380, *2 (W.D. Pa. Jun. 24, 2016).  When the plaintiff received a series of calls from Wells Fargo’s home mortgage group, the plaintiff filed suit alleging violations of the TCPA.  Through the course of discovery, the plaintiff admitted that she was “doing” TCPA violations as a business and had a shoebox full of burner phones for the sole purpose of “suing clients like yours, Wells Fargo, for violating the TCPA.” Id.at * 32. 

On summary judgment, the court addressed the question of whether the plaintiff had standing to bring TCPA claims.  Relying in part on the Supreme Court’s decision in Spokeo and in part on the purpose of the TCPA, the court granted summary judgment in favor of the bank.  In doing so, the court concluded that the plaintiff had neither constitutional nor prudential standing to bring claims under the TCPA. 

Where, as here, the plaintiff admits that she files TCPA actions as a business, the plaintiff’s “privacy interests were not violated when she received calls from Defendant.  Indeed, Defendants’ calls “[did] not adversely affect the privacy rights that {the TCPA] is intended to protect…Because Plaintiff has admitted that her only purpose in using her cell phones is to file TCPA lawsuits, the calls are not “a nuisance and an invasion of privacy.”  Id.at * 34 (internal citations omitted).    Moreover, the court concluded that Plaintiff did not suffer an injury in fact based upon any violation of the plaintiff’s economic rights.  While the court was dismissive of defendant’s argument that there could be no injury in fact absent some allegations of actual damages, the court nonetheless held that “[b]ecause Plaintiff has admitted that her only urpose in purchasing her cell phones and minutes is to receive more calls, thus enabling her to file TCPA lawsuits, she has not suffered any economic injury.”  Id. at * 38.    

Moreover, the court held that the Plaintiff did not have prudential standing because her interests were not within the zones of interests protected by the TCPA.  “Because Plaintiff does not have “the sort of interest in privacy, peace, and quiet, that Congress intended to protect, the Court finds that she has failed to establish that the injury she complains of “falls within the zone of interests sought to be protected by the statutory provision whose violation forms the legal basis for [her] complaint.”  Id. at * 47-48. 

The case bears consideration for a couple of reasons.  First, defense counsel did its homework and was aware that the plaintiff was a serial litigant.  Secondly, the case appears to have been won at the deposition stage where defense counsel elicited testimony as to the number of burner phones plaintiff had and plaintiff’s business plan.  Finally, the case provides an even more expansive perspective of standing as a defense and broadens the defense beyond constitution standing.

Words Matter When Revoking Consent

In revocation of consent, words matter as illustrated by a recent district court decision from the Northern District of California.  In Dixon v. Monterey Financial Services, the consumer alleged that on three separate occasions she orally revoked her consent to be contacted via an automated telephone dialing system.  Dixon v. Monterey Fin. Servs., 2016 U.S. Dist. LEXIS 82601 (N.D. Cal. June 24, 2016).  The consumer contended that the account servicer’s continued calls therefore violated the TCPA.  

On the defendant’s motion to dismiss, the court cited to the FCC’s interpretation of the TCPA and notably the FCC’s conclusion that a subscriber has a right to revoke consent and may do so by “clearly express[ing] his or her desire not to receive further calls.”   Id. at *6.  Because “consent is terminated when the [person who obtained consent] knows or has reason to know that the other is no longer willing for him to continue the particular conduct.” Id. at *2. The court therefore turned to the three calls in question and the exact language used by the consumer to determine when and if the consumer revoked consent: 

·        In the first call at issue, the consumer stated “I have, um, an attorney…who helps me with, um, consumer mistreatment the way I’m being treated” and “[w]hat I’m going to do is contact [him]…and have him contact you guys.”  The court concluded that the language used was not sufficient to revoke consent.  “Although the referenced comments indicate the plaintiff had or intended to retain counsel to respond to defendant’s inquiries regarding plaintiff’s debt, plaintiff did not use language that would cause defendant to know, or have reason to know, she was revoking her prior express consent to be called.  Indeed….”[t]elling [the defendant] that it could do something, hardly indicates that it cannot do something else.”

·        In the second call, however, the consumer went further stating “I asked you guys not to call me and you can contact my attorney.”  The court held that this was sufficient for a trier of fact to find that the statement constituted an expression of her current desire not to receive further calls.

In light of the FCC’s conclusion in its Declaratory Order in 2015 that consent may be revoked “in any reasonable manner that clearly expresses his or her desire not to receive further calls”, it is becoming evidence that collectors and others making calls subject to the TCPA must pay close attention to the language used by the consumer to ascertain whether consent is being revoked.  See 3 FCC Rcd. at ¶ 70 (2015).  As evidenced by this court’s decision, words matter and we are likely to see more parsing of language as the case law develops.

CFPB Issues its Summer Supervisory Highlights

The CFPB published its Summer Supervisory Highlights last week, highlighting examinations that were conducted between January 2016 and April 2016 across various financial products.  The Report comes on the heels of a Supervisory highlight report devoted entirely to mortgage servicing. The Report highlights key findings made by the CFPB and provides insight into the current focus of examiners.  The Report highlights a number of technology failures and covers auto finance, debt collection, mortgage origination, payday lending and fair lending.  The CFPB noted the following issues worthy of mention:

AUTO FINANCE

The Report makes two specific observations and one very general observation.  As suggested in other recent CFPB activity, the CFPB is scrutinizing add on products and the representations made by lenders regarding the same.  Specifically, the Bureau noted that add on products and specifically, gap coverage products, should be accurately described. The CFPB also noted that one or more auto lenders engaged in deceptive practices when allowing consumer to defer payments in that they omitted details as to how interest would accrue and how payments would be applied as a result of the deferral. 

The Bureau also noted compliance management system weaknesses in one or more examinations.  Specifically, the Bureau noted the following deficiencies and auto lenders, both direct and indirect, should take note:

·      Failure to raise compliance-related issues to the institution’s board of directors or their principal;

·      Failure to monitor and correct business line practices to align with federal consumer financial law;

·       Failure to adequately track training completed by employees and the Board;

·       Failure to follow up on consumer complaints; and

·      Failure of compliance audits to highlight deficiencies in the consumer complaint response process.

DEBT COLLECTION

· Banks and other original creditors who sell debt should carefully review their technology and their use of coding.  The Bureau noted that, as a result of coding errors, one or more debt sellers sold accounts which were in bankruptcy, accounts that were products of fraud and accounts that had been paid in full.

· The Bureau also found that one or more debt collectors made false representations to collect debt. Particularly, the Bureau noted instances of debt collectors making representations that down payments were required to establish a repayment plan and that use of a checking account was the only option for repayment.  In both instances, the debt collector’s policies and procedures did not support the representations and the Bureau concluded that the practice was deceptive.

MORTGAGE ORIGINATION

The majority of the Report is devoted to mortgage origination issues and reflect some of the struggles faced by lenders since the implementation of TRID.  Specifically, the Bureau’s examinations indicated that:

·       One or more lenders incorrectly calculated the amount financed on loans with discount credits and subsequently incorrectly calculated the finance charge on the same loans, resulting in a negative finance charge and an amount financed that exceeded the stated loan amount;

·       One or more lenders offering bridge loans failed to accurately disclose the interest payments due to a software failure;

·       One or more institution demonstrated weak oversight of their automated systems, including inadequate testing of codes that calculate the finance charge and the amount financed when originating residential loans to consumers.

The Report also noted failures to comply with the Fair Credit Reporting Act.  The Report indicates that one or more institutions failed to comply with the FCRA’s adverse action notice requirements.

PAYDAY LENDING

It should not come as a surprise to those following the proposed payday rules, the CFPB has concerns as to electronic fund transfers on small short term loans.  The Bureau’s examinations noted issues with compliance with the Electronic Fund transfer Act.  Specifically, the Report notes that one or more lenders’ loan agreements were ambiguous as to the acceptable range of amounts to be debited.  As a consequence, lenders were required to revise their loan agreements for new loans. For existing loans, the Bureau required one or more entity to notify borrowers of the amount of any new transfer that will vary from the amount of the previous or preauthorized amount before initiating the new transfer.

CFPB Employs “Mystery Shopper” Strategy in Fair Lending Investigation

The CFPB and the Department of Justice have partnered together to enter into a proposed consent order with BancorpSouth Bank which resolves allegations that the bank engaged in a pattern or practice of redlining in its mortgage lending practice, discriminated in its underwriting and pricing of certain mortgage loans to minorities, and implemented an explicitly discriminatory denial practice.  The investigation marks the first time that the CFPB has used testers or “mystery shoppers” to support an allegation of discrimination. The consent order, if approved, requires the bank to invest $4 million in a loan subsidies, pay $2.78 million in settlement to African-American consumers harmed by the bank’s practices, spend at least $300,000 on targeted advertising in majority-minority neighborhoods in its Memphis MSA, spend at least $500,000 on local partnerships with community or governmental organizations that provide financial literacy and pay a $3 million civil penalty.  The proposed consent order also requires the bank to extend credit offers to previously denied African-American consumers who were denied mortgage loans as a result of the bank’s allegedly discriminatory underwriting policies and add at least one additional branch in a majority-minority neighborhood in its Memphis MSA. 

The complaint alleges that between 2011 and 2013, the bank violated the Equal Credit Opportunity Act and Fair Housing Act. Both Acts prohibit discrimination based upon race, color and national origin.  The agencies alleged that the bank “discriminated in a number of distinct ways through virtually every stage of its lending process.” Complaint, ¶ 3. The complaint makes four key allegations against the bank.  First, the complaint alleges that the bank engaged in redlining in minority neighborhoods in its Memphis MSA. Id. at  ¶4. Secondly, the complaint alleges that the bank illegally discriminated against African-American mortgage applicants in its underwriting of loan by rejecting both their consumer and business purpose loans at significantly higher rates than those of “similarly situated non-Hispanic White applicants” (“White”).  Id. at  ¶5.  Thirdly, the complaint alleges that the bank discriminated against African-American applicants by charging them higher prices than similarly situated White applicants.  Id. at ¶6. Finally, the complaint alleges that the bank implemented a policy and practice that required its employees to treat mortgage applicants differently based upon their race.  Id. at ¶7. 

The bank, while neither admitting nor denying the allegations of the complaint, entered into the consent order “solely for the purpose of avoiding contested litigation with the United States and the Bureau, and to instead devote its resources to providing fair credit services to eligible borrowers with meeting their credit needs.”  The consent order further notes that prior to the entry of the Order, the bank engaged in a number of steps to improve its compliance management system which included:

• Implementing rate sheets to price loans originated by its Community Banking Department;
• Transitioning to centralized underwriting;
• Appoint a Chief Lending Officer with responsibility over the bank’s fair lending compliance program;
• Opening a full time service branch in a minority neighborhood in its Memphis MSA;
• Implementing enhanced fair lending training; and
• Monitoring pricing and underwriting outcomes on a quarterly basis.

Beyond the monetary remediation previously discussed, the consent order requires the bank:

• With the assistance of a third party independent compliance-management-system consultant, develop and submit for approval a written Fair Lending Compliance Plan which includes at a minimum:
• Steps to effectively and promptly revise and revise the bank’s current mortgage lending policies and practices to ensure compliance with ECOA and the FHA;
• Diversity policies and practices;
• Fair lending training on an annual basis to all lending personnel to ensure employees’ conduct themselves in a nondiscriminatory manner;
• Written policies and procedures which insure the bank provides equal information and assistance to all applicants regardless of race or other prohibited characteristics;
• A formal process for ongoing monitoring of defendant’s mortgage lending for compliance with ECOA and the FHA, including conducting periodic fair lending statistical analyses of loan pricing and underwriting outcomes;
• Internal regular audits of the bank’s mortgage lending at least annually; and
• Implementation or revision of a consumer complaint resolution program which addresses complaints alleging discrimination in mortgage lending.
• Implement policies and procedures for the pricing of all mortgage loans that exclusively base pricing on objective credit and borrower characteristics supported by a legitimate business need; and
• Maintain specific race neutral underwriting guidelines, policies and procedures for mortgage loans that are designed to ensure consistent application of legitimate underwriting criteria and avoid unlawful discrimination.

Banks and other lenders should be aware that the CFPB has now embraced the use of “testers” or mystery shoppers – sending individuals (both white and African American) into branch offices to ascertain whether the testers were treated differently.  The CFPB contended in this matter that, in several instances, a Bancorp South Bank loan officer treated the African-American tester less favorably than a white counterpart with similar credit qualifications.