Monday, October 31, 2016

Courts Continue to Draw Line on Standing

A New Jersey district court’s recent dismissal of a single count claim brought under the Fair and Accurate Transactions Act (“FACTA”) reinforces the need for consumers to carefully identify their injury in fact.  In Kamal v. J. Crew Group, Inc., 2016 U.S. Dist. LEXIS 145392 (D.N.J. Oct. 20, 2016), the consumer filed a  putative class action alleging that defendant violated FACTA by displaying the first six digits and last four digits of his credit card on the electronically printed receipt. FACTA, which was passed in part to curb credit card fraud and identity theft, prohibits printing more than five digits of a credit card number on a sales receipt.  The plaintiff alleged that he became more susceptible to fraud as a result of the defendant’s violation of FACTA.

In considering the defendant’s motion to dismiss for lack of standing, the court considered whether, “in light of Congress’ decision to authorize private suits under FACTA, printing ten rather than five credit card digits on a sales receipt elevates the risk of fraud enough to work a ‘concrete’ injury for the purpose of Article III standing.”  Kamal at *6. In determining that the motion to dismiss should be granted, the court found that the amended complaint did not provide facts sufficient to demonstrate a “risk sufficiently ‘actual or imminent’ to constitute a concrete injury.”  Specifically, the court noted that: (a) there was no evidence that anyone had accessed or attempted to access plaintiff’s credit card information; and (b) there was nothing to indicate anyone will actually obtain one of the plaintiff’s discarded receipts and identify the remaining six digits of the credit card number and then attempt to use the card.  Moreover, the court noted that “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirements whenever a statute gives a person a statutory right.” Id. at *10. 

The court’s decision joins a growing body of case law which has emerged since Spokeo v. Robins which refuses to give credence to technical statutory violations without some allegation or indicia of real harm.

Thursday, October 27, 2016

CFPB Turns its Attention to Prepaid Products and North Carolina

The CFPB issued its Monthly Report this week. 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 prepaid card products and emphasizes the CFPB’s concern for the unbanked and underbanked population. Cordray noted that for the unbanked and underbanked, “prepaid products are a vital source of financial security.”  CFPB Monthly Complaint Snapshot Highlights Prepaid Product Complaints.


NATIONAL OUTLOOK. Each month, the Report breaks down complaint volume by product looking at a three month average and comparing the same to the prior year. Student loan complaints showed the greatest percentage increase when compared to the same period of 2015, increasing 96% over last year.  As has been the case in prior months, the Report continues to indicate that the three products yielding the highest volume of complaints on a month to month basis are debt collection, mortgage and credit reporting.  Together, they represent about 63% of all complaints submitted in September.


FEATURED PRODUCT OR SERVICE. This month’s report focuses on prepaid cards which, aside from “other financial service”, comprise the smallest percentage of complaints received by the CFPB for September and continue to remain toward the bottom of the list overall.  Put simply, prepaid product complaints make up less than 1% of all complaints received by the CFPB.


The most common issues identified by consumers are managing, opening or closing an account and unauthorized transactions or other transaction issues. Specifically, 


  • According to the report, consumers complained of questionable transactions being posted to their prepaid cards and claimed their cards were cancelled without notification after they submitted a dispute;

  • Consumers also reported difficulty using prepaid cards after purchase and being asked to submit validating documentation; and
  • Consumers also complained about receiving prepaid cards as a refund, but being unable to activate the card, access the funds or both.  

NORTH CAROLINA. As it does every month, the Report spotlights a geographic area.  This month, the Report shined its bright light on North Carolina and the complaint trends for both the state and the Charlotte metropolitan area.  For perspective, only about 3% of all complaints received by the CFPB originate in North Carolina.  The most complained of products and services mirror the national picture with mortgage, debt collection and credit reporting comprising the vast majority of all complaints.  As noted by the CFPB, the rate of mortgage related complaints is slightly higher than the national average and it is the most frequently complained of product in North Carolina.

Wednesday, October 26, 2016

Cordray Provides Mortgage Industry with Insight on Examination Priorities

In his prepared remarks to the Mortgage Bankers Association, CFPB Director Richard Cordray offered some insight into his office’s examination priorities with respect to the mortgage industry.    Here are the key takeaways:

  • TRID:  In his remarks, Cordray characterized the CFPB’s early examinations of TRID compliance to be “diagnostic and corrective, not punitive.”  According to Cordray, examiners are focused on the institution’s compliance management system and efforts to comply.  Cordray also indicated that examiners are engaged in transaction testing.
  • Mortgage Servicing: Cordray confirmed that the complaint portal is being used as a partial basis for examinations as it provides a better understanding of trends.  Cordray also indicated that mortgage servicing remains a focal point of examinations and that examiners will continue to focus on the effectiveness of institutional information technology systems.
  • Redlining:  Again, Cordray indicated that this is a “priority issue” in the Bureau’s supervisory work without much elaboration.

Tuesday, October 25, 2016

Timing is Everything: 11th Circuit Finds Loss Mitigation Application Untimely

The Eleventh Circuit recently issued an opinion emphasizing the importance of timing under the Mortgage Servicing Rules.  In Lage v. Ocwen Loan Servicing, the court considered whether the mortgage servicer had an obligation to evaluate a loss mitigation application when, at the time the completed application was submitted, a foreclosure sale was scheduled to occur in two days.  Lage v. Ocwen Loan Servicing, 2016 U.S. App. LEXIS 18264 (11th Cir. Oct. 7, 2016).  The consumers contended that the application was timely because the servicer ultimately postponed the sale and the actual sale occurred more than 37 days after the application was submitted. 
The facts of this case are important in that they highlight the complexity of the loss mitigation process.  The foreclosure sale in this matter was originally scheduled to occur January 29, 2014.  On January 8, 2014, the borrowers submitted a loss mitigation application to the servicer which included detailed information about their income and expenses as well as copies of their recent pay stubs, tax returns and other financial information.  On January 9, 2014, the servicer acknowledged receipt and advised that they would notify the borrowers if they needed additional information.  Over the course of the next two weeks, the parties communicated back and forth regarding the loss mitigation application and ultimately, the servicer requested an additional pay stub and indicated that upon receipt, it would evaluate the application.  The pay stub was submitted January 27, 2014 and the borrowers contended that their application was complete January 27, 2014.  The next day, the foreclosure sale was postponed until March 14.  Ultimately, the servicer then requested two more pay stubs and requested additional information, as well.  According to the mortgage servicer, the loss mitigation application was complete on March 7, 2014.  The mortgage servicer denied the application on March 9, 2014 as untimely because the foreclosure sale was scheduled to occur within seven days.  

The consumers filed suit contending the servicer violated the Mortgage Servicing Rules by failing to evaluate the merits of their loss mitigation application within 30 days as required by 12 CFR 1024.41(c).  The district court ruled in favor of the servicer holding that the servicer was not obligated to evaluate the application because the regulation was not in effect when the consumers submitted their application on January 8, 2014 (the regulations took effect on January 10, 2014).
On appeal, the Eleventh Circuit did not address the issue of whether the servicer was obligated to comply with the Mortgage Servicing Rules because even assuming the rules applied, the borrowers’ application was untimely.   The duty to evaluate a loss mitigation application is triggered only “when the borrower submits a “complete loss mitigation application more than 37 days before a foreclosure sale.”  12 CR 1024.41(c)(1).  The court concluded that the Mortgage Servicing Rules require that, in determining the timeliness of the application, the parties should look to the date the foreclosure sale was scheduled when the borrower submitted their completed application.  Specifically, 12 CFR 1024.21(b)(3) provides:

To the extent a determination of whether protections under this section apply to a borrower s made on the basis of the number of days between when a complete loss mitigation application is received and when a foreclosure sale occurs, such determine shall be made as of the date a complete loss mitigation application is received.

The court dismissed the consumers’ contention that the operative date was the date the foreclosure sale actually occurs.  To do so, according to the court, would render the last clause of (b)(3) meaningless.  The court also noted that its interpretation was consistent with the CFPB’s interpretation noting that the CFPB had expressly disavowed the consumers’ position.  “The Bureau recognized that allowing a servicer’s delay of a foreclosure sale to give a borrower greater rights may discourage servicers from rescheduling foreclosure sales and voluntarily considering untimely applications – actions which benefit borrowers…  Stated another way, the Bureau acknowledged that if a borrower’s late application could become timely – and trigger the servicer’s duty to evaluate the application under 1024.41 – as a result of the servicer voluntarily postponing a foreclosure sale then it may be to the servicer’s advantage to proceed with the scheduled foreclosure instead of evaluating the borrower for loss mitigation options.”  Lage  at *17-18. 

Accepting the consumers’ contention that their loss mitigation application was complete on January 27th, the application’s timeliness was assessed based upon the January 29th foreclosure sale and, therefore, the application was untimely.

Monday, October 24, 2016

To Be or Not to Be: The Definition of a Mortgage Servicer Comes Under Scrutiny

For purposes of RESPA, is there a difference to be had between “servicing” a loan and being a “servicer”?  The question was recently addressed by a district court from Florida. Buyea v. Select Portfolio Servicing, No. 9:16-cv-80347, 2016 U.S. Dist. LEXIS 140571 (S.D. Fla. Oct. 11, 2016). In Buyea, the consumer submitted a request for information (“RFI”) requesting the identity, address and telephone number of the current owner or assignee of the mortgage.  At the time the request was submitted, the mortgage has been in default for more than a year. The consumer filed suit alleging that the defendant violated RESPA by failing to timely and sufficiently respond to the RFI. The defendant moved to dismiss asserting that it was not a “servicer” at the time the RFI was received and that, to the extent it was a servicer, its response was timely and sufficient as a matter of law.

In support of its argument, the defendant relied upon the definitions of “servicer” and “servicing” provided in 12 U.S.C § 2605. Under RESPA, the “servicer” is the person responsible for servicing the loan. 12 U.S.C. § 2605(i)(2).  Meanwhile, “servicing” is defined as “receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan… and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.”  12 U.S.C. § 2605(i)(3) (emphasis supplied). The defendant contended that, at the time the RFI was received, the consumer was 409 days delinquent in his mortgage payments and because the defendant was not receiving mortgage payments, it was not a “servicer” and had no obligation to respond to the RFI.

While the court agreed that the defendant was no longer servicing the consumer’s loan, it concluded that it remained a servicer and was obligated to respond to the RFI.  In reaching its conclusion, the court looked at what it considered to be a key distinction between the definitions of “servicer” and “servicing”: the term “servicer” means the person responsible for servicing the loan.  Therefore, “[w]hether or not Defendant was actively servicing the loan, Defendant remained responsible for servicing the loan at the time it received Plaintiff’s RFI.” Buyea at *10.

Tuesday, October 18, 2016

Informational Injury Not Enough to Create Article III Standing

A district court in California has dismissed a complaint alleging violations of the FCRA’s informational provisions because the plaintiff did not have Article III standing.  Nokchan v. Lyft, Inc., Case No. 15-cv-03008-JCS. 2016 U.S. Dist. LEXIS  (N.D. Cal. Oct. 5, 2016).  In Nokchan, an employee of Lyft alleged Lyft failed to provide certain disclosures regarding credit and background checks during the application process.  In response, Lyft filed a motion to dismiss asserting that the plaintiff lacked standing under Article III and citing the Supreme Court’s recent decision in Spokeo v. Robins, 136 S. Ct 1540 (2016).

Since the Spokeo decision, there has been much debate as to which, if any, bare statutory violations provide a sufficient injury in fact to support Article III standing.  In Spokeo, the court held that a plaintiff invoking federal jurisdiction must have an injury in fact – one that is both concrete and particularized, as well as actual.  The Court noted, however, that certain intangible harms may be elevated by Congress to meet the Article III requirements. 

Since Spokeo, plaintiffs and certain courts have relied upon the examples of intangible harms elevated to injury in fact cited by the Supreme Court in Spokeo to distinguish informational injuries from other bare statutory injuries. Those courts have read Spokeo broadly to mean that bare violations of informational statutory provisions are sufficient to assert an injury in fact.   A recent Eleventh Circuit panel, for example, held that bare violations of the FDCPA’s informational provisions found in 15 U.S.C. §1692g were sufficient to grant Article III standing even absent allegations of economic or physical harm.  See, e.g., Church v. Accretive Health, Inc., 2016 U.S. App. LEXIS 12414 (11th Cir. July 6, 2016).  In doing so, the court in Church relied upon the statutory examples cited by the Court in Spokeo.

In Nokchan, the plaintiff asserted bare violations of the FCRA’s informational provisions requiring certain disclosures be made to prospective employees prior to conducting a background check.  The plaintiff did not allege that he was confused by the documents Lyft provided or that if Lyft had complied with the FCRA that he would not have consented to the background and credit checks.  Additionally, he did not allege any actual harm that he suffered as a result of Lyft’s alleged statutory violations.  In contrast, he was actually hired by Lyft and continued to work for them. 

Once the Court found there was no actual or concrete harm suffered by the Plaintiff, it looked to see whether the statutory violations alone were sufficient to provide Article III standing under Spokeo.  In rejecting the rationale used by the Eleventh Circuit in Church, the court in Nokchan noted that the examples provided by the Court in Spokeo of intangible injuries created by statute “involved interests of much greater and broader significance to the public than those at issue in Church… In short, the Court rejects the view that the proposition that every statutory violation of an “informational” right “automatically” gives rise to standing.  Nokchan, 2016 U.S. Dist. LEXIS at 24.  Moreover, “[w]hile procedural violations that have resulted in real harm- or even a risk of real harm – may be sufficient to meet this requirement, Plaintiff in this case has alleged no such injury.” Nokchan at *10.   Because the plaintiff failed to assert any tangible or intangible injury in fact, the court dismissed the action.

Monday, October 17, 2016

Supreme Court Agrees to Hear FDCPA Proof of Claim Case

Last week, the Supreme Court agreed to hear Midland Funding v. Johnson and resolve the split in the circuits over whether the filing of a time barred proof of claim violates the FDCPA and whether the Bankruptcy Code preempts the FDCPA regarding proofs of claim. As many know, Johnson was the Eleventh Circuit’s encore act to Crawford v. LVNV in which it not only supported its position in Crawford but expanded it by addressing the issue left unanswered in Crawford: whether the Bankruptcy Code preempts the FDCPA where the debt collector files a proof of claim on a debt it knows to be time barred. Johnson v. MidlandFunding, LLC, C.A. No. 15-11240, 2016 U.S. App. LEXIS 9478 (11th Cir. May24, 2016).

Recap of Johnson

In Johnson, the Court answered that question in the negative, finding that the Bankruptcy Code does not preempt the FDCPA. Instead, “[t]he FDCPA easily lies over the top of the Code’s regime, so as to provide an additional lawyer of protection against a particular kind of creditor.” Johnson at *15. In its analysis, the Court found that the Bankruptcy Code and FDCPA “differ in their scopes, goals, and coverage, and can be construed together in a way that allows them to coexist.” Johnson at *13-14. The court concluded that the two statutes could be reconciled because “they provide different protections and reach different actors.” Johnson at *14. While the Bankruptcy Code allows creditors to file proofs of claim even with respect to time barred debt, it does not require that they do so. While “creditors can file proofs of claim they know to be barred by the relevant statute of limitations, those creditors are not free from all consequences of filing these claims.” Johnson at *10. The court read the statutes together as “providing different tiers of sanctions for creditor misbehavior in bankruptcy.” Johnson at *15 The Court was adamant that regardless of the circumstances if a debt collector, as defined by the FDCPA, “files a proof of claim for a debt that the debt collector knows to be time-barred, that creditor must still face the consequences imposed by the FDCPA for a ‘misleading’ or ‘unfair’ claim.” Johnson at *16. 

The Aftermath of Johnson and Crawford

Since Johnson, two more circuits have weighed in on the proof of claim issue. In
Owens v. LVNV Funding, LLC, the Seventh Circuit held that in states where the statute of limitations does not extinguish the debt, the filing of a time barred proof of claim does not give rise to an FDCPA claims where the proof of claim does not contain inaccurate information and where the defendant has not otherwise engaged in deceptive or misleading debt collection practices. Owens v. LVNV Funding, LLC, 2016 U.S. App. LEXIS 14706 (7th Cir. Aug. 10, 2016). Two weeks later, the Fourth Circuit followed suit holding that the filing of a time barred proof of claim does not violate the FDCPA when the statute of limitations does not extinguish the debt. Dubois v. Atlas Acquisitions, No. 15-1495, 2016 U.S. App. LEXIS, *22-23 (4thCir. Aug. 25, 2016).

The circuits have also taken opposite positions on the issue of preemption. While the Johnson court held that the Bankruptcy Code does not preempt the FDCPA, other circuits have disagreed. It has long been the Ninth Circuit’s position that the Bankruptcy Code preempts the FDCPA in a bankruptcy setting. Walls v. Wells Fargo Bank,  276 F.3d 502 (9th Cir. 2002). The Second Circuit similarly held in Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2nd Cir. 2010) that the proof of claims process is solely the dominion of the Bankruptcy Code. The Third and Seventh Circuits meanwhile have taken the contrary position, holding that the Bankruptcy Code does not preempt the FDCPA. See Randolph v. IMBS, Inc. 368 F.3d 726 (7th Cir. 2004); Simon v. FIA Card Servs., 732 F.3d 259 (3d Cir. 2013).

Johnson in the Supreme Court

The significance of the issues and the divisiveness of the issues led both the petitioner and respondent in Johnson to agree that the issues presented were worthy of the Supreme Court’s attention. The parties’ agreement fast tracked the courts’ consideration of the petition.  

The issues certified for appeal are: (a) whether the filing of a an accurate proof of claim for an unextinguished time barred debt in a bankruptcy proceeding violates the FDCPA; and (b) whether the Bankruptcy Code, which governs the filing of proofs of claim in bankruptcy, precludes the application of the FDCPA to the filing of an accurate proof of claim on an unextinguished time-barred debt. Currently, the petitioner’s brief is due the end of November.

Thursday, October 13, 2016

What Banks and Credit Unions Need to Know: CFPB Enters into Debt Collection Consent Order

The CFPB’s Consent Order with Navy Federal Credit Union (“NFCU”) should provide a wakeup call for all community banks and credit unions as to how they conduct their internal debt collection efforts.  The Consent Order requires Navy Federal Credit Union, the nation’s largest credit union, to pay roughly $23 million in redress to affected consumers and a civil monetary penalty of $5.5 million to the CFPB.

The Consent Order takes issue with the credit union’s internal collection practices, as well as its policies for freezing members’ electronic access to accounts post delinquency.  The Consent Order further reiterates the CFPB’s position that first party debt collectors, while not subject to the FDCPA, are prohibited from engaging in unfair, deceptive, or abusive acts or practices when engaged in the collection of consumer debts.

The Consent Order, which was entered into by the credit union without admitted or denying any of the key findings of fact or conclusions of law, takes issue with the credit union’s internal collection practices.  As with many community banks and credit unions, NFCU conducted most of its collection efforts internally prior to the point of litigation.  NFCU’s primary debt collection activities were through letters and telephone calls to delinquent and overdrawn members.  In reviewing the credit union’s activities, the CFPB took issue with the credit union’s debt collection letters, telephonic communications with consumers and its practice of freezing consumer electronic account access (notably ATM and debit card access).


  • The credit union’s letter templates contained several material misrepresentations that were likely to mislead reasonable consumers. Specifically, several letter templates threatened legal action when in fact the credit union had narrow perimeters for litigation.  The CFPB found that the message “pay of be sued” was inaccurate about 97% of the time. Consent Order, ¶24.  Particularly, the CFPB noted letter templates that:
    • Stated legal action had “been recommended”;
    • Stated that if the consumer failed to make a payment, the credit union would “have no alternative but to recommend [the account] for legal action”; and
    • Threatened garnishment of wages which is generally a post judgment remedy.
  • The CFPB also took issue with letters which threatened to contact active servicemembers’ commanding officers.  While the CFPB acknowledged that the credit union’s account agreements contained a provision which “purported to give… [the credit union] the right to disclose servicemembers’ debts to their military commands”, the CFPB contended that the contract clause was ineffective because it was “buried in fine print, non-negotiable, and not bargained for by consumers.”  The Order noted that while the threat was communicated, there was no evidence that the credit union ever contacted commanding officers and thus, the threat was false.
  • The CFPB also noted that the credit union’s letters miscommunicated the credit consequences of delinquency.  The Order finds that the letters misleadingly implied the credit union issued credit ratings or offered credit repair services.  Particularly, the CFPB highlighted letters that stated:
    • “You will find it difficult, if not impossible, to obtain additional credit because of your present unsatisfactory credit rating with” the Credit Union;
    • The consumer could “repair[]” his or her credit or credit reputation by contacting the credit union.


            The CFPB also found that the credit union’s collection personnel made statements by telephone that were likely to mislead consumers including threatening legal action or garnishment and threatening to contact the members’ military commander.


            The Consent Order finally found that that credit union had a practice of freezing the consumer’s electronic account access and disabling certain electronic services once the consumer became delinquent, including debit or ATM card access.  “In most cases, consumers could not regain their electronic services until after they settled their debt or made arrangements with” the credit union.  The CFPB further found that until mid-2015, the credit union did not make an exception for accounts containing protected federal benefits, including social security income or veteran’s benefits.


  • The CFPB’s finding that the credit union made false threats of litigation was keyed upon its finding that the message to consumers was inaccurate 97% of the time.  Banks and credit unions should take note that the CFPB came to that conclusion by reviewing the number of consumers who received the letters at issue and the number of debt collection suits filed by the credit union in the same period.  The order noted that the disparity appeared to be the result of “the disconnect between the… [credit union’s] narrow litigation practice and its broad letter campaign.”  The lesson to be learned here is twofold: (a) compliance teams need to insure their letter templates are in fact in line with the entity’s actual practices; and (b) compliance teams need to audit and test their letter campaigns vis-à-vis their actual practices to insure accuracy.
  • Banks and credit union should review their compliance management systems to insure they adequately address and are consistent with the FDCPA, as well as CFPB Bulletin 2013-07, both of which set forth debt collection practices that are deemed unfair, deceptive and abusive. 
  • Banks and credit unions should also insure that their policies and procedures are consistent with the FDCPA and CFPB Bulletin 2013-07 as applicable.  Moreover, training materials and internal policies should be updated periodically and at least annually to address any deficiencies in training or compliance issues identified by other means, including consumer complaints;
  • The Consent Order makes clear the expectation that banks and credit unions provide initial and periodic training to collections personnel regarding debt collection practices and that banks and credit unions audit and test their debt collection practices to insure compliance. 
  • Moreover, the Consent Order sets forth the CFPB’s expectation that training should be documented, along with any corrective actions taken including discipline, reprimand or provide remedial training to employees that are not proficient.
  • The Consent Order finally finds that the credit union’s practice of freezing and disabling electronic account access to accounts when the member became delinquent (often on an unrelated account) was unfair debt collection practice.  Banks and credit unions should review their practices and if engaged in a similar practice as a means of debt collection, should cease and desist the practice immediately.  Banks and credit unions should note the distinction between the practice highlighted in the Consent Order and any contractual or statutory right of set off the bank or credit union may have.

Wednesday, October 12, 2016

Eleventh Circuit Holds Garnishment Proceeding Not Subject to FDCPA Venue Clause

The Eleventh Circuit recently joined the First and Eighth Circuits in concluding that the FDCPA’s venue provision does not apply to post-judgment garnishment proceedings.  In Ray v. McCullough Payne & Haan, LLC, the defendant law firm obtained a judgment against the plaintiff in the Fulton County, Georgia, the judicial district in which the consumer lived.  Post judgment, the law firm filed a garnishment proceeding against the consumer’s bank seeking to collect on the judgment.  The garnishment proceeding was filed in Cobb County, Georgia, where the bank was located.  The consumer filed suit against the law firm, alleging that the law firm’s garnishment action violated the FDCPA’s venue provision which requires that:
[a]ny debt collector who brings any legal action on a debt against any consumer shall…bring such action only in the judicial district or similar legal entity – (A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action.

15 U.S.C. §1692i(a)(2).         

The issue, as stated by the court, was “whether the FDCPA’s venue provision applies to post-judgment garnishment proceedings under Georgia law.” Ray, CITE.  “[A]s a result, whether the provision applies to Georgia garnishment proceedings depends on whether those proceedings are legal actions “against any consumer.” CITE.  Turning its attention to the Georgia garnishment statute, the court noted that the garnishment process in Georgia requires a summons be directed to the garnishee (in this case, the bank) and not to the consumer.  Moreover, the Georgia statute expressly provides that garnishment proceedings are actions between the judgment-creditor and the garnishee.  The court therefore concluded that the FDCPA’s venue provision does not apply to post-judgment garnishment proceedings under Georgia law and affirmed the district court’s dismissal of the FDCPA action.

The opinion provides a couple of key takeaways for debt collectors:

  • First, it should be noted that the court’s analysis looks specifically to the state statute governing post judgment proceedings and more importantly, to the nature of the post-judgment proceedings and the proper parties to those post-judgment proceedings.  The dispositive issue for the Eleventh Circuit was whether the post-judgment proceedings were against the consumer or some third party.  Practitioners should note that the answer to this question is state-centric and should be examined on a state-by-state basis.
  • The second key takeaway is the court’s use of the FTC’s Staff Commentary as further support for its conclusion.  The Staff Commentary provides that if a judgment is obtained from a forum that satisfies the venue requirements of section 1692i, then a debt collector may bring suit to enforce it in another jurisdiction.  Statements of General Policy or General Interpretation Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed. Reg. 50,097, 50,101 (Dec. 13, 1988).   The rationale, which was cited favorably by the court, is that the consumer has been provided with his day in court and opportunity to defend the original action in a convenient forum.  This particular point may be helpful to practitioners renewing judgments with multiple consumers where one consumer has moved to a judicial district aside from where the contract was entered or the original judgment was obtained.  Many practitioners debate whether they have to file suit to renew the judgment in multiple venues or whether they can renew the judgment in the original venue.  The Staff Commentary may support the position that a single action to renew the judgment may be brought.



Monday, October 10, 2016

CFPB Enters into Consent Order with Fintech Company

The CFPB has made it abundantly clear that it expects fintech companies to abide by the same rules as traditional brick and mortar lenders.  The Bureau’s consent order with San Francisco online lender Flurish, Inc. highlights the need for startups to effectively vet their products prior to launch to ensure compliance with the consumer protection regulatory scheme. Flurish, Inc., which does business as LendUp, is required to pay $1.82 million in retribution to affected consumers and a $1.8 million civil monetary penalty to the CFPB. 

LendUp held itself out as providing online single payments loans and installment loans and touted its “step up” system as allowing consumers to build up credit and improve credit scores.  The Consent Order highlights violations of multiple consumer protection laws, including the Truth in Lending Act and Fair Credit Reporting Act.  According to the Order,

·        LendUp’s loan-program marketing was misleading.  LendUp marketed its loan programs with claims they would build a consumer’s credit and credit scores by allowing consumers to move up the “LendUp Ladder” by taking out additional loans with more favorable terms.  Although advertised nationally, the two top level tiers of LendUp’s loans, however, were not available except in California.  Moreover, LendUp did not furnish any information to the credit reporting agencies to improve consumer’s credit scores until at least February 2014.

·        LendUp also ran amuck of the Truth in Lending Act in a number of ways:

o   LendUp allowed consumers applying for its lowest tier single payment loans the option to choose a loan maturity date as late as the consumer’s state allowed or an earlier date.  Where the earlier date was selected, the consumer was provided a discount on the origination fee.  If the consumer later extended the repayment fee, the discount was reversed.  According to the Consent Order, LendUp failed to disclose the potential for reversal to the consumer at the time they signed their loan agreement.

o   LendUp also violated the Truth in Lending Act by understating the APR.  According to the Order, LendUp failed to incorporate into its APR the portion of expedited funding fees which were retained by LendUp.  LendUp also used a faulty APR calculation tool for a period of time and did not have adequate testing provisions in place to identify the issue.

·        LendUp also ran afoul of the Fair Credit Reporting Act and Regulation V’s requirement that it have in place written policies and procedures about the accuracy and integrity of the information it furnished to credit reporting agencies. LendUp did not have any such policies and procedures in place until April 2015.

Lessons to be Learned.

·        The Order supports earlier statements by the CFPB that it holds fintech companies to the same standards as other lenders.

·        The CFPB continues to rely upon the Unfair and Deceptive Provisions on the Consumer Financial Protection Act to enforce through consent orders where other statutory authority does not exist.

·        Fintech startups should be reminded that it is essential they review consumer financial service products carefully with a lawyer well versed in the regulatory scheme before they rollout new products to ensure compliance.

·        Marketing is subject to the same scrutiny as the product itself.

Tuesday, October 4, 2016

OCC Lays Out SCRA Compliance Management System Expectations in New Wells Fargo Consent Order

They say bad news comes in threes and Wells Fargo capped off September entering into its third Consent Order in roughly a month. This time, the Consent Order resolved issues with the bank’s compliance with the Servicemembers Civil Relief Act (“SCRA”). According to the OCC, the bank violated three separate provisions of the SCRA by failing to provide the 6% interest rate limit to servicemembers’ obligations or liabilities incurred before military service, failing to accurately disclose servicemembers’ active duty status to courts via affidavits prior to evictions and by failing to obtain proper court orders prior to repossessing vehicles. The Order comes a year have the OCC re-emphasized its focus on bank compliance with the SCRA and its intentions to ramp up on enforcement. In 2015, regulators took corrective actions against both JP Morgan Chase and Bank of America regarding the SCRA. The Wells Fargo Consent Orders require the bank to pay a $20 million civil monetary penalty, provide restitution to affected consumers, and establish an enterprise wide SCRA compliance program.
As is often the case, the consent orders provide guidance for other regulated entities as to the elements of a robust compliance management system. Among other things, the Consent Orders, which do not include any admission of wrongdoing, requires the bank establish a written program to ensure the bank’s compliance with the SCRA. At a minimum, regulated entities should review their own SCRA Compliance program to ensure it meets regulator’s expectations. According to the Consent Order entered into by Wells Fargo, a SCRA Compliance Program should:
  • Include written policies and procedures which provide:
    • Uniform standards and processes for identifying customers eligible for SCRA benefits and protections;
    •  Uniform standards and processes for determining whether a servicemember who submits a request for SCRA benefits and protections is eligible for such benefits and protections not only for the requested account, but for all accounts (including commercial accounts) for which the servicemember is personally liable;
    • Processes for notifying servicemembers of the bank’s denial of SCRA benefits and protections;
    • Processes to insure affidavits filed by or on behalf of the bank are accurate, complete and reliable;
    • Procedures for when searches of the Department of Defense database must be conducted before filing and obtaining a default judgment and for making a determination of the servicemembers eligibility for SCRA benefits and protections;
    • Procedures for initiating and obtaining waiver of rights under the SCRA; and
    • Procedures for applying relevant state laws which provide more benefits or procedures than those provided by the SCRA;
  • Include written policies and procedures regarding record retention including:
    • Written procedures and processes requiring the Bank obtain and maintain sufficient documentation to support:
      • The dates of military service for servicemembers who request SCRA benefits and protections;
      • The method, date, and results of military status verifications prior to seeking or obtaining a default judgment;
      • Dates of any correspondence with any servicemember covered by the SCRA; and
      • The calculation of benefits and protections provided to the servicemember by the SCRA.
    • Written procedures and processes for documenting the basis for the bank’s determination of an account’s eligibility for SCRA benefits or protections or the bank’s denial of benefits and protections;
  • The development of internal guidance, guidelines and formats that convey general information regarding the SCRA to bank employees;
  • Written policies and procedures for conducting periodic reviews and updating;
  • Written policies and procedures to ensure deficiencies in SCRA policies, procedures or processes are identified and corrected;
  • Establishment of an ongoing system of monitoring and testing within all potentially affected lines of business to ensure compliance with the SCRA and ensure policies and procedures are being followed and are effective;
  • Establishment of an enterprise-wide customer complaint management program designed to capture, identify and address SCRA-related complaints; and
  • Establishment of a written program to ensure all relevant personnel (including compliance, management, loan officers and customer service) are trained periodically regarding the SCRA and related state laws.
Banks and other financial service providers should also keep in mind that amendments to the Military Lending Act began to take effect October 3, 2016.