CFPB Shines Its Light on Auto Finance in its Monthly Complaint Report

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.  This month’s report highlights consumer loans with auto lending playing the starring role.  The report provides some forecasting of areas regulators are likely to focus on in upcoming examinations and auto lenders, in particular, should take note.

 

Each month, the Report breaks down complaint volume by product looking at a three month average and comparing the same to the prior year.  As has been the case in prior months, the Report continues to indicate that the three products yielding the highest volume of complaints are debt collection, credit reporting and mortgage.  If there is good news to be had, the Report indicates that debt collection complaints remained flat in a year to year comparison with 2015.  Student loans showed the most significant increase in volume over last year’s comparable period with an increase of 61%. Taking this into account, we are likely to see an increased focus on student lending issues in coming months.

 

This month’s report focuses on consumer loan products and in particular, auto finance. According to the Report and within the product category, vehicle loans comprise 52% of all complaints.  The Report indicates that: 

• The most common complaint received regarding auto loans is that consumers have difficulty managing their loans.  The report does not explain what in particular that means, but the complaints received are centered on payment processing issues, disputes as to balances, and repossessions without prior notification.
• The Report also notes that consumers are submitting complaints regarding warranty coverage on used vehicles.  It would not be surprising to see the Bureau at some point turn its attention to extended and third party warranty products.
• Another issue highlighted by the CFPB is concerns with the advertising practices at “Buy Here, Pay Here” dealerships.  Consumers are complaining about false and deceptive advertising centered on “no credit check” policies and promises to rebuild credit.

So What Are the Key Take Aways? The CFPB appears focused on the “unfair and deceptive” aspects of auto lending.  The CFPB is reporting that their analysis of the complaint data "shows consumers sometimes have difficulty understanding loan features during the loan negotiations" and find the terms of their financing "confusing".   Many Consumers Face Challenges in Understanding Auto Financing, Says New CFPB Report (June 27, 2016).  Lenders should keep in mind that the CFPB often relies upon the “unfair and deceptive” provision of Dodd Frank to regulate through enforcement actions. Based upon the Report and the “Know Before You Owe” campaign by the CFPB, it would not be surprising therefore to see the CFPB  focus in upcoming examinations on the manner in which payments are being processed, adequate disclosures as to the application of payments and repossession procedures and policies.  It would also not be surprising at some point focus to see some sort of mandated disclosures by the CFPB, particularly in the used vehicle setting and with respect to add on products.

 

 

District Court Holds Settlement Letter on Time Barred Debt Does Not Violate FDCPA

A district court in New Jersey recently held that a letter offering settlement on a time barred debt did not threaten litigation and therefore did not violate the FDCPA.  In Lugo v. Firstsource Advantage, C.A. No. 2:15-cv-06405-SDW-SCM, 2016 U.S. Dist. LEXIS 78636 (D.N.J. Jun. 16, 2016), the debt collector sent a settlement letter to the plaintiff which provided

This account has been placed with our office for collection to resolve your delinquent debt. If you wish to settle this account for a lump sum payment of $334.54 within 45 days from the date of this letter, please contact one of our representatives to discuss this settlement.  This offer will remain open for 45 days from the date of this letter and we are not obligated to renew this offer. If you are unable to take advantage of this offer within the 45 days allotted, please contact one of our representatives to discuss payment options.

Complaint, Ex. A.  At the time the letter was sent, the debt was time barred; however, the letter did not disclose this fact.

The plaintiff filed a putative class action alleging the debt collector violated 15 U.S.C. §§1692e and f because it was sent “to mislead her into paying the entire debt, or to deceive her into making partial payment in order to reset the statute of limitations and renew Defendant’s ability to legally collect the debt.”  The court granted the debt collector’s motion to dismiss relying on the Third Circuit’s opinion in Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011).  The court found that the FDCPA permits the debt collector to seek voluntary repayment so long as it does not initiate or threaten legal action.  The court was persuaded by the fact that the letter set forth a single lump sum payment option and used the word “settle”.  The court concluded that under the Circuit’s “least sophisticated consumer” standard, the letter did not threaten litigation.

CFPB Continues to Focus on Mortgage Servicing

The CFPB has issued a special edition of its Supervisory Highlights making clear it remains dissatisfied with the advances the mortgage industry has made in the wake of the regulatory upheaval.  Many of the concerns expressed by the CFPB relate to information technology failures.  As noted in the Supervisory Highlights, “[t]he magnitude and persistence of compliance challenges since 2014, particularly in the areas of loss mitigation and servicing transfers, show that while the servicing market has made investments in compliance, those investments have not been sufficient across the marketplace.”  Supervisory Highlights Mortgage Servicing Special Edition, p. 3.  Notably, the CFPB attributes many of the failings to technology failures. 

The CFPB Approach to Examinations.  The CFPB readily admits that it uses a prioritization approach to determining which mortgage servicers to examine.  Its approach takes into account:

o   The size and market presence of the servicer – a relatively large servicer with a dominant market presence will take precedence over a comparatively smaller servicers;

o   Field and market intelligence including compliance management system strengths, existence of regulatory actions from prior examinations, servicing transfer activity, and the number, severity and trends of consumer complaints.

Lessons to Be Learned from the Supervisory Highlights. Those involved in the mortgage industry should place close attention to this edition of the Supervisory Highlights and make adjustments in their policies, practices and procedures accordingly.  Here are the key takeaways:

·       Mortgage Servicers need to carefully review their systems, processes and contents of their Acknowledgement Notices.  Specifically:

o   Some servicers are not sending out the loss mitigation acknowledgment notices  after receipt of a loss mitigation application from a consumer;

o   Some servicers are not providing the acknowledgements in a timely fashion;

o   Other servicers’ notices were deemed deceptive because they:

§  Failed to state the additional documents necessary to complete the loss mitigation application;

§  Requested documents inapplicable to the borrower’s circumstances;

§  Requested documents the borrowers had already submitted;

§  Failed to include a reasonable deadline to complete the application;

§  Gave a deadline to complete the application and then denied the application prior to the deadline running; and

§  “Failed to include a statement that borrowers should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options.”

·       Mortgage Servicers Need to Carefully Review the Contents of Their Consumer Communications to Insure Their Accuracy.  A number of issues were identified where consumer communications did not accurately reflect the mortgage servicer’s actions. Mortgage servicers should carefully to review their communications and loss mitigation procedures to insure they are consistent. For instance,

o   One or more servicers sent communications which represented the servicer would defer charges to the maturity date of the loan and the servicer then assessed charges after the consumer signed and returned permanent modifications;

o   One or more servicers sent loss mitigation offers with response deadlines that had passed as a result of delays in the servicer mailing the correspondence;

o   One or more servicers provided modification agreements that did not match the terms approved by underwriting software;

o   One or more servicers provided communications which were not accurate concerning conversion of trial modifications to permanent modifications; and

o     “Examiners found one or more servicers required borrowers to sign waivers agreeing that they would have no “defenses, setoffs, or counterclaims to the indebtedness of borrowers pursuant to the Loan Document” in order to enter mortgage repayment and loan modification plans.”  As noted by the CFPB, this violated Regulation Z.

·       Mortgage Servicers Need to Review their Denial Notices to Insure They Accurately Reflect the Specific Reason(s) for Denial of Loss Mitigation.  Here, the CFPB noted:

o   One or more servicer failed to accurately state the reason(s) for denial; and

o   One or more servicer failed to communicate the borrower’s right to appeal denial of loss mitigation.

·       Mortgage Servicers Need to Review Their Policies and Procedures and Insure They are reasonably Designed to Comply with Regulation X.  Specifically, the CFPB noted that one or more servicers violated Regulation X because their policies and procedures were not reasonably designed to achieve the following:

o   Provide the borrower with accurate and timely information in response to the borrower’s request for information;

o   Identify and facilitate communication with a deceased borrower’s successor in interest;

o   Identify accurately and with specificity all loss mitigation options for which a borrower may be eligible;

o   Promptly identify and provide access to all materials submitted by a borrower in support of its loss mitigation application to the appropriate mortgage servicer personnel;

o   Properly evaluate loss mitigation applications for all options available to the borrower based upon the loan owner’s requirements;

o   Insuring accurate and current information regarding the servicer’s evaluation of the loss mitigation application and the status of foreclosure is available to all appropriate service personnel, including foreclosure attorneys and similar vendors;

o   Accurately identify necessary documents or information that may not have been transferred by a predecessor servicer.

·       Servicers Need to Focus on Accurate Transfers of Accounts.  In this respect, the CFPB noted that one or more servicer incompatibilities between servicer platforms have led to transferees failing to identify and honor in-place loss mitigations.

The Bottom Line.   A number of the concerns raised by the CFPB are the result of system malfunctions and technology deficiencies.  As noted by the CFPB, “improvements and investments in servicing technology, staff training, and monitoring can be essential to achieving an adequate compliance position. However, such improvements have not been uniform across market participants.  Supervision continued to observe compliance risks, particularly in the areas of loss mitigation and servicing transfers.”  Mortgage servicers are encouraged to review their compliance management systems to insure their servicing platforms are accurately servicing their practices and should pay careful note to the concerns raised in the Supervisory Highlights as these are often the precursor to regulatory enforcement actions.

Guest Post: Ninth Circuit Expands Discovery Rule to All FDCPA Claims

By: Parker Dozier
June 15, 2016

The Ninth Circuit has expanded its application of the discovery rule to all claims made under the FDCPA.  Lyons v. Michael & Assoc., 2016 U.S. App. LEXIS 10363 (9th Cir. 2016).  The Court had previously limited its holdings on the issue to the facts of the particular case in front of it.  See Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009) (applied only to disclosure of information to third parties); Tourgeman v. Collins Fin. Serv., Inc., 755 F.3d 1109 (9th Cir. 2014)(applied to debt collection letters).    

In Lyons, the defendant debt collector filed suit in an improper venue under the FDCPA on December 7, 2011.  Lyons was served with the collection suit in mid-January 2012.  Lyons sued the defendant debt collector on January 3, 2013 for violating the FDCPA’s venue provision.  The plaintiff alleged that she did not know of the lawsuit until she was served, and the defendant did not offer any evidence to the contrary.  The District Court ruled that the FDCPA’s one year statute of limitations began to run the day the lawsuit was filed, which meant the plaintiff’s claim was time barred.  The timing in this case clearly illustrates how the application of the discovery rule can save a plaintiff’s case or the non-application can lead to summary judgment for the debt collector.  The Ninth Circuit reversed the District Court’s decision and held “that the discovery rule applies equally regardless of the nature of the FDCPA violation alleged by a plaintiff.”  Lyons, 2016 U.S. App. LEXIS 10363 at *7.  The defendant’s argument that the discovery rule should only apply to certain FDCPA claims did not resonate with the Court.  “Applying the discovery rule to some FDCPA claims but not others would be out of step with our general approach to the discovery rule, and would threaten to capriciously limit the broad, remedial scope of the FDCPA.”  Id. at *7-8.

The Court’s expansion of its application of the discovery rule only heightens the current split among the circuits.  The Fourth Circuit, like the Ninth Circuit, applies the discovery rule, however, the Eighth and Eleventh Circuits do not apply the discovery rule.  The other circuits have yet to rule on the issue. 

About the Author:  Parker Dozier is an associate with Smith Debnam and a member of the firm's Consumer Financial Services Litigation and Compliance team. 

District Court Weighs in on Article III Standing

A district court in Georgia has weighed in the issue of standing in the wake of the Supreme Court decision in Spokeo v. Robbins.  In Rogers v. Capital One Bank, C.A. No. 1:15-cv-4016 (N.D. Ga. June 7, 2016), the consumers alleged that they received numerous calls in violation of the TCPA despite their requests that the creditor quit calling.  The Bank moved to dismiss alleging that the plaintiffs did not have Article III standing because the plaintiff had not alleged a particularized and concrete injury.  The court disagreed, holding that with respect to the TCPA, the Eleventh Circuit has already held that “Congress intended to create a concrete injury where the statute was violated, meaning so long as the plaintiff had been affected personally by the conduct that violates the statute, standing exists.”   The court continued that “[b]because the Plaintiffs allege that the calls were made to their personal cell phone numbers, they have suffered particularized injuries because their cell phones were unavailable for legitimate use during the unwanted calls.”  The implications of the decision are two fold.  The bad news is that, in the Eleventh Circuit, there is a likelihood that the Spokeo decision may not impact statutory TCPA claims.  The good news is that the court’s language suggests that with respect to who has standing to bring a TCPA claim may be limited to the person who is the primary user of the cell phone versus the subscriber.

CFPB Unveils “Know Before You Owe” Tool for Auto Purchases

Last week, the CFPB unveiled its “Know Before You Owe” tool for auto lending.  The “Auto Lending Shopping Sheet” provides a step by step guide for consumers purchasing automobiles and highlights the items which are negotiable.  It is important to note that the “Know Before You Owe” tool does not involve new regulations but is instead an educational tool for consumers.  Patterned after the mortgage “Know Before You Owe” series, the CFPB tool includes a series of informational resources which walk consumers through the purchase of a car step by step. Importantly, the tool includes information regarding credit reporting (including the impact of credit inquiries), fair lending and the Servicemembers Civil Relief Act.