CFPB's Monthly Report Focuses on Credit Card Products

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.

 

Complaint Volume by Product

• After a one month respite, mortgage is back among the three products yielding the highest volume of complaints on a three month average rejoining debt collection and credit reporting;
• A trend worth noting is that the number of debt collection complaints remains almost flat; 
• Student loans continue to reflect the highest increase in change from last year– a 62% increase when compared to 2015. The CFPB attributes this increase to the updating of its student loan intake form to include complaints after Federal student loan servicing in late February 2016; 
• Student loan complaints showed the greatest month to month decrease after spiking in January 2017. The Report suggests the January spike in complaints concerning student loans appears to be in response to the Bureau’s enforcement action against Navient.

Highlighted Product: Credit Card Accounts

Credit card providers and servicers may want to pay close attention to their policies and procedures concerning billing disputes based upon this month’s report.  Specifically, the Report notes that:

·        Billing disputes continue to be the most complained about aspect of credit card products, making up 17% of all credit card complaints. The report indicates that billing disputes include those involving fraudulent charges and the resolution of those disputes.  Correspondingly, identity theft/fraud/embezzlement comprised 10% of all credit card complaints. Specifically, consumers complained that:

o   They were billed for charges that were not initiated by them or authorized users;

o   Credit card companies provided confusing guidance concerning billing disputes;

o   Credit card companies were slow to respond to billing disputes; and

o   Their credit reports reflected negative activity based upon account activity that was not initiated or authorized by them.

·        Reward programs were also highlighted in the Report as a source of complaints.  Consumers complained that they were unable to take advantage of reward benefits after meeting the requirements for the rewards and that customer service representatives provided information that was contradictory of the online account information. 

·        Late fees and other account servicing charges remain a concern for consumers.  The Report indicates complaints regarding improperly assessed late fees and payments not being timely credited.

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 their billing dispute policies and procedures.

Credit Reporting Remains a High Priority for the CFPB

The CFPB confirmed credit reporting remains a high priority for the agency by issuing a special Supervisory Highlights devoted to credit reporting earlier this month.  The report was generally complimentary of the strides that credit reporting agencies have made but indicated significant concerns with furnishers’ compliance with the FCRA and its accompanying regulation, Regulation V.  Here are the key take-aways concerning furnisher compliance:

·        Furnishers need to beef up their compliance management systems to ensure compliance with the FCRA.  The CFPB noted that at one or more furnishers there was:

o   Weak oversight by management and the Board of Directors;

o   No formal data governance program;

o   Inadequate training of employees who handled furnishing and disputes; and

o   Weak monitoring and corrective action, including testing of accounts;

·        Furnishers need to ensure they have policies and procedures in place regarding the accuracy and integrity of the information they provide to consumer reporting agencies (“CRAs”).  Specifically, the Report highlights the need for policies and procedures that:

o   Address handling and investigation of disputes;

o   Address the creation and retention of documentation to substantiate dispute decisions;

o   Prevent duplicative or mixed file reporting;

o   Instruct how to conduct reasonable investigations of consumer disputes;

o   Address vendor management; and

o   For those institutions that have deposit accounts, ensure adequate enterprise-wide FCRA policies are in place that specifically address consumer deposit accounts and deal with them consistently in compliance with the FCRA including its dispute investigation and reporting requirements.

·        Furnishers need to bone up on their date of first delinquency or “DOFD” reporting. The Report noted:

o   Compliance issues where information is absent on incoming loan servicing data transfers.  In those instances, the Bureau noted that policies and procedures were not in place to require follow up and obtain and accurately report the DOFD; and

o   One or more furnishers failed to accurately report DOFD when the consumer filed bankruptcy.  Specifically, the Report observed furnishers updating the DOFD to reflect the date of bankruptcy filing rather than continuing to indicate the date of delinquency as being the month and year that the account first went delinquent.

·        Furnishers need to invest in quality control measures.  The Report noted the following deficiencies during its examinations of furnishers:

o   Failure to perform quality checks on the data furnished to CRAs;

o   Failure to test for the accuracy of information after it is furnished;

o   Failure to conduct ongoing periodic evaluations or audits of furnishing practices or data furnished to consumer reporting agencies; and

o   Failure to conduct audits of dispute information to identify and correct root causes of any inaccurate furnishing.

·        Furnishers’ policies and procedures need to adequately insure data accuracy.  The Report indicates that in more than one examination, examiners found:

o   Furnishers furnishing information to consumer reporting agencies which did not accurately reflect the information in the furnishers’ system;

o   Furnishers failing to update information previously furnished after determining the consumer information was not complete or accurate; and

o   Furnishers failing to promptly update payment information for charged off accounts where consumers made payments under payment plans;

·        Furnishers need to ensure they are handling disputes in compliance with Regulation V.  Specifically, the Report notes that examiners found that:

o   Furnishers struggled with direct dispute procedures and practices.  Specifically,

§  Furnishers failed to provide proper notice to consumers after determining that a dispute was frivolous or irrelevant;

§  Furnishers failed to conduct timely investigations; and

§  Furnishers failed to respond to direct disputes with sufficient specificity;

o   Furnishers struggled with indirect dispute procedures.  Specifically, furnishers failed to complete their investigations in a timely manner.

The Report should be reviewed by furnishers of credit information across all product types as it reflects the Bureau's examinations priorities and is likely to foreshadow future enforcement actions.

Eleventh Circuit Takes on Mortgage Servicing Rules

In a brief opinion, the Eleventh Circuit recently examined Regulation X’s requirement that a loan servicer provide a written response acknowledging receipt of a written request for information (“RFI”) pursuant to 12 C.F.R. 1024.36.  In Meeks v. Ocwen Loan Servicing, the consumer’s counsel sent an RFI to the loan servicer via certified mail, return receipt requested.  Meeks v. Ocwen Loan Servicing, 2017 U.S. Dist. LEXIS 3677 (11th Cir. Mar. 1, 2017). Upon receipt, the mortgage servicer’s agent signed the certified return receipt and the receipt was then received by the consumer’s counsel.  Nine days after its receipt of the RFI, the mortgage servicer sent a substantive response to the RFI. 

12 C.F.R. 1024.36(c) requires the loan servicer to provide a written response acknowledging receipt within five days of receiving the RFI.  The issue before the court on appeal was whether: (a) the signed certified mail receipt satisfied the written acknowledgement provision of Reg X; and (b) the consumer had suffered a real and concrete injury.  Regarding the first issue, the court succinctly agreed with the district case that under the circumstances of the case, the return receipt satisfied the written acknowledgement provision of Reg X.  In making its determination, the court paid particular attention to the fact that the consumer’s counsel received the signed return receipt was undisputed.  As to the second issue, the court determined the consumer did not have standing under Article III, again noting that “Meeks (and his attorneys) had undisputed actual knowledge of receipt of the RFI, although they dispute that its form was sufficient to meet Regulation X’s requirements.  Thus, Meeks suffered at most ‘a bare procedural violation’ and he cannot show that he suffered a real, concrete injury from Ocwen’s actions.” Meeks at *4.

Misstated Summons Did Not Create FDCPA Violation

A summons which stated the consumer had thirty days to answer a debt collection suit did not violate the FDCPA when the state rules of civil procedure only provided for twenty days.  In Bryant v. Kass Shuler, P.A., the consumer filed an FDCPA complaint alleging that the collection suit summons indicated the plaintiff had thirty days to answer the suit when the court’s publicly stated docket indicated the plaintiff only had twenty days to respond.  The court granted the debt collector’s motion to dismiss. In doing so, the court focused on the “least sophisticated consumer” standard to determine whether the summons as a communication violated Section 1692e of the FDCPA which prohibits false or misleading representations.

The court noted that while a communication violated section 1692e if the least sophisticated consumer would be deceived or misled by the communication, the least sophisticated consumer is “presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care.” Bryant v. Kass Shuler, P.A., 2017 U.S. Dist. LEXIS 27811, quoting LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1194 (11^th Cir. 2010).  Moreover, the court noted that only material misrepresentations violate the FDCPA.  Material misrepresentations are only those that influence the consumer’s ability to pay or challenge a debt. Bryant at *4.  The court rejected the consumer’s argument that the summons was misleading because it misstated the law and conflicted with the state court’s publicly accessible docket.  In doing so, the court stated that the summons was not materially misleading.

[t]he difference between the two response times would not have influenced even the least sophisticated consumer’s ability to either pay or challenge the debt.  Defendant’s grant of additional days to respond in no way obfuscates the existence of the debt or the means by which the Plaintiff could contest the creditor’s allegations.

Id. at *4-5.  The court was equally dismissive of the consumer’s argument that the misleading summons presented a heightened risk of default noting that the Florida state procedure would have required the defendant to produce the original summons to prove default and would have been bound by the thirty-day response period set forth in the summons.

District Court Opinion Highlights Effect of Spokeo on FDCPA Claims

A recent district court opinion from Michigan makes clear that statutory violations of the FDCPA do not absolve a plaintiff from the need to show a concrete injury in order to establish Article III standing.  In Johnston v. Midland Credit Mgmt, C.A. No. 1:16-cv-437, 2017 U.S. Dist. LEXIS 10610 (Jan. 26, 2017),  the complaint alleged that the consumer received a settlement letter which provided three settlement options.  The letter contained an error in that the second settlement option was not populated with a payment amount.  Instead, it indicated a blank discount percentage rate and a monthly payment amount of $0.00 due on March 25, 2016. The consumer, on the advice of counsel, contacted Midland and indicated that he would take the zero-dollar option.  When Midland advised him the letter contained an error but that the first settlement offer of a lump sum was still available, the consumer rejected the offer and stated that he only wanted the zero-dollar payment option.  Based upon the letter and Midland’s failure to honor the zero-dollar option, the plaintiff filed suit asserting that the settlement letter was false, misleading and/or deceptive under 15 U.S.C. 1692e.  Midland moved to dismiss asserting that the plaintiff failed to allege a concrete injury and that the mistaken language of the letter did not change the fact that the plaintiff owed the full amount of the debt at issue.

The court granted the motion to dismiss.  In doing so, the court considered first, whether there was a concrete injury sufficient to support jurisdiction and secondly whether the plaintiff had stated a plausible claim under Rule 12(b)(6).  Regarding the first inquiry, the court determined that no concrete injury in fact had been pled.  The court dismissed the plaintiff’s argument that he suffered actual damages because he was not able “to put the subject debt behind him for $0.00 and that other collection attempts in the future may occur”.  The court noted that the letter’s statement did not change the fact that the plaintiff owed the debt.  Moreover, the court was equally dismissive of the notion that Plaintiff incurred harm because “his receipt of the false, deceptive and misleading collection letter caused him to keep the letter and seek advice of counsel, thus incurring de minimis travel expenses, loss of time to evaluate the letter and call Midland to determine the validity of the offer, as opposed to ignoring it and throwing it in the trash.” 

Moreover, the court concluded that the plaintiff had not sufficiently stated a plausible claim under the FDCPA under the least sophisticated consumer standard.  The court pointed out that while the “standard recognizes the Act protects the gullible and the shrewd alike while simultaneously presuming a basic level of reasonableness and understanding on the part of the debtor.”  In reviewing the language at issue, the court observed that

Reviewing the letter in its entirety, the least sophisticated consumer would realize that the $0.00 payment option was an error.  First, the second option listed “OFF,” whereas the first option listed “90% OFF.”  Further, the second option indicated a first payment date of March 25, 2016. This not only shows an amount was due, but that it could be made over multiple payments which does not make sense if nothing was due.  Finally, the least sophisticated consumer would understand that giving nothing in exchange for the satisfaction of a debt is not a payment.”

Johnston at *14-15.  The decision is a positive for the debt collection industry and is reflective of the positive effects of Spokeo and the further scrutiny being placed on consumer protection complaints by courts nationwide to insure there is in fact a justiciable issue for determination.

CFPB Monthly Report Returns its Focus to Credit Reporting and Mortgage Complaints Fall Out of the Top Three

The CFPB issued its monthly report on consumer complaints last 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.   This month’s report highlights credit reporting which was last in the “spotlight” in May 2016.  Here are the highlights of this month’s report:

·        Complaint Volume by Product

o   In a startling change from prior months, the three products which yielded the highest volume of complaints in January 2017 were debt collection, student loan and credit reporting.  This is the first month where mortgage complaints were not in the top three.  Student loan complaints jumped 537% over December 2016 numbers.  No explanation was provided for the sudden spike in student loan complaints between December and January.

o   For the three-month period, student loans indicated the highest increase in change –  388% when compared to 2016.  The CFPB explained this year to year increase as being partly attributable to the CFPB updating its student loan intake to include complaints about Federal student loan servicing in February 2016; and

o   On a monthly basis, complaints for all products except money transfer increased over December numbers.

·        Highlighted Product: Credit Reporting

o   The CFPB notes that, as has been the case each time credit reporting is highlighted, the most common credit reporting complaint in July was incorrect information on credit reports (76% of all credit reporting complaints);

o   The CFPB report indicates that these complaints frequently involved difficulties with disputing inaccuracies with their credit report.  A lot of these complaints center on issues with customer service. 

o   Many consumers additionally submitted complaints about inaccurate personal information on their reports involving incorrect or unrecognized names and addresses and “mixed” credit reports.

o   The report also notes that complaints about hard credit inquiries are increasing.  Consumers complain that hard inquiries appear when they did not take any action to apply for a loan.

o   The report also notes that complaints about accounts being reported where the consumer is in bankruptcy are also on the rise.

o   The Report notes that the Bureau is receiving complaints against specialty consumer reporting agencies and highlighted complaints involving rental, background and employment screening complaints.