Category Archives: Consumer Financial Protection

Second Circuit Holds CFPB’s Funding Structure Is Constitutional

Posted on by

Diana M. Eng, Louise Bowes Marencik, and Jonathan K. Moore ●


Entities regulated by the Consumer Financial Protection Bureau (“CFPB”), including banks, credit unions, payday lenders, mortgage servicers, debt collectors, and other financial services providers, should take note that the Second Circuit has held that the CFPB’s funding structure does not violate the Appropriations Clause of the Constitution. Further, CFPB-regulated entities should pay close attention to the Supreme Court of the United States’ forthcoming decision on the constitutionality of the CFPB’s funding structure. If the CFPB’s funding structure is held to be unconstitutional, the bureau’s future operations will be in jeopardy without action from Congress.

In Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C., No. 20-3471 (2d Cir. March 23, 2023), the United States Court of Appeals for the Second Circuit (“Second Circuit”) held that the Consumer Financial Protection Bureau’s (“CFPB”) funding structure is constitutional. In doing so, the Second Circuit affirmed the decision of the United States District Court for the Southern District of New York (“District Court”) upholding the enforceability of an investigative demand served by the CFPB on a debt collection law firm.

Read the full client alert on our website.

Welcome to Internet and Mobile Marketing: HUD’s 1996 RESPA CLO Policy Statement Finally Refreshed

Posted on by

R. Colgate Selden, R. Andrew Arculin, Scott D. Samlin, Paula M. Vigo Marques, and Daniel V. Funaro ●

A new Consumer Financial Protection Bureau (“CFPB”) advisory opinion refreshes the Department of Housing and Urban Development’s computer loan origination system policy statement for a new generation of online marketing technology, specifically targeting the policy to “operators of certain digital technology platforms” that function via website and online applications. These “Digital Mortgage Comparison-Shopping Platforms,” as described by the CFPB, “enable consumers to comparison shop for mortgages and other real estate settlement services, and include platforms that generate potential leads for platform participants through consumer interactions.”

The CFPB advisory opinion applies long standing interpretations on unlawful referrals to new online marketing technology platforms. However, even if such platforms are permissible under a referral analysis, they still could violate prohibitions on unfair, deceptive, or abusive acts or practices and other federal and state laws. The advisory also functions to put the industry on notice for future enforcement actions should operators of noncompliant marketing platforms not heed the guidance in the advisory.

Background

After nearly 30 years, the CFPB issued an advisory opinion (“CFPB Opinion”) last week picking up where the Department of Housing and Urban Development (“HUD”) left off in 1996 with its policy statement on computer loan origination systems (“CLOs”). The HUD policy statement, which addressed the applicability of the Real Estate Settlement Procedures Act’s (“RESPA”) Section 8 prohibition on kickbacks in exchange for settlement service business referrals to CLOs, was drafted at a time when CLOs often consisted of a lender’s Internet dial-up computer kiosk located in a real estate broker or other settlement service provider’s office.

Read the full client alert on our website.

CFPB Looks to Expand Its Oversight of Nonbanks through Two Controversial New Registries

Posted on by

R. Andrew Arculin, R. Colgate Selden, Scott E. Wortman, Paula M. Vigo Marques, and Daniel V. Funaro

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released two new proposals that aim to expand the Bureau’s authority over nonbank financial institutions:

  1. A “repeat offender” registry of consent orders or settlements with an array of state and federal regulators relating to compliance with consumer protection laws (“Repeat Offender Proposal”); and
  2. A public registry of the terms and conditions nonbanks use in “form contracts” that consumers typically are not able to negotiate (“Terms and Conditions Proposal”).

Assuming these registries are created as proposed and survive any ensuing legal challenges, complying with the reporting obligations should be relatively easy. The larger challenge will be managing the increased regulatory and litigation risk imposed by the registries.

Repeat Offender Proposal

On December 12, 2022, the CFPB issued a proposal to establish a “repeat offender” registry requiring certain nonbank covered entities to report all final public written orders and judgments (including any settlements, consent decrees, or stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of a number of enumerated consumer protection laws, including those related to unfair, deceptive, or abusive acts or practices (“UDAAPs”).

After receiving these written orders and judgments, the CFPB intends to create a database of enforcement actions that would be available online for use by the public and other regulators. The database will be limited to final settlement or consent orders, so injunctions, preliminary orders, temporary cease-and-desist, and other tentative or temporary orders would not be reportable.

In addition, the proposal would require supervised nonbanks to submit annual written statements regarding compliance with an attestation for each underlying order by an executive with “knowledge of the entity’s relevant systems and procedures for achieving compliance and control over the entity’s compliance efforts.” These entities would also be required to identify a central point of contact related to an entity’s compliance with reportable enforcement actions.

The proposed rule would only apply to certain nonbank covered entities subject to CFPB’s authority. At present, insured depository institutions and credit unions, related persons, states, natural persons, and certain other entities are excluded from registry participation requirements. However, the CFPB stated in the press release for the proposal that it “might later consider collecting or publishing the information described in the proposal from insured banks and credit unions.”

Read the full client alert on our website.

New York Law Journal: New York’s Foreclosure Abuse Prevention Act: What You Need to Know

Posted on by

New York Law Journal, January 11, 2023 

Diana M. Eng and Andrea M. Roberts ●


On Dec. 30, 2022, Gov. Hochul signed the Foreclosure Abuse Prevention Act (Act). The Act, which amends the Real Property Actions and Proceedings Law (RPAPL), General Obligations Law (GOL) and Civil Practice Law and Rules (CPLR), became effective immediately and applies to all actions commenced under CPLR 213(4) and in which a final Judgment of Foreclosure and Sale has not been enforced. As such, the Act applies to pending actions, not just new actions commenced after the effective date.

Highlights of the Act are summarized below, but please refer to the full text of the Act for additional information and potential further updates after the date of this publication (NY State Assembly Bill A7737B (nysenate.gov)):

    • The Act adds a new subdivision 4 to RPAPL §1301, which provides that while an action is pending or after final judgment, no other action shall be commenced, including an action to foreclose, without leave of court. The failure to obtain leave of court shall be a defense in the new action and the commencement of the new action without leave of court discontinues the other action, unless, prior to the entry of final judgment in the other action, a defendant raises the failure to comply with the condition precedent or seeks dismissal of the action under CPLR 3211(a).

In addition, RPAPL §1301(4) makes clear that the subdivision shall not act as a stay or statutory prohibition for purposes of calculating the statute of limitations. Further, if it is determined that an action to foreclose under the mortgage or recover under the note is time-barred, the subdivision expressly states that any other action to foreclose or recover under the same debt is similarly time-barred. The amendment overrules New York case law holding that since a lender has a right to the election of remedies, if the court holds that enforcement of the mortgage based on a borrower’s non-payment is time-barred, res judicata does not absolutely bar the lender from electing a different remedy of pursuing a money judgment under the unpaid note.

Read the full article on our website.

New York Law Journal: Can the Foreclosure Abuse Prevention Act Survive a Constitutional Challenge?

Posted on by

New York Law Journal, January 6, 2023 

Diana M. Eng and Andrea M. Roberts ●


In February 2021, the New York Court of Appeals issued a long-awaited decision in Freedom Mortgage v. Engel, 37 N.Y.3d 1 (2021), which, among other things, held that the voluntary discontinuance of a foreclosure action constitutes an affirmative revocation of acceleration because such “discontinuance withdraws the complaint and, when the complaint is the only expression of demand for immediate payment of the entire debt, this is the functional equivalent of a statement by the lender that the acceleration is being revoked.” Id. at 31-32. This decision was reasoned upon longstanding case law governing contract interpretation. See Albertina Realty Co. v. Rosbro Realty, 258 N.Y. 472 (1932); Kilpatrick v. Germania Life Ins. Co., 183 N.Y. 163 (1905).

Engel was seen as a win for the financial services industry after years of the appellate courts and New York State Legislature imposing obstacles that delayed foreclosures or prevented lenders from foreclosing upon defaulted residential mortgage loans. Foreclosure defense attorneys and pro bono legal services labelled Engel “egregious” because they viewed it as a license for banks to bring previously time-barred cases “back to life.” See Maria Volkova, ‘Foreclosure Abuse Prevention Act’ awaits New York governor’s signature, HousingWire (May 13, 2022). As a result, the New York State Legislature drafted the “Foreclosure Abuse Prevention Act” (Act), which amends CPLR 3217 by adding a new subdivision (e) to provide that the voluntary discontinuance of an action, whether by motion, order, stipulation or notice, shall not waive, postpone, cancel, toll, extend, revive or reset the statute of limitations, unless prescribed by statute. NY State Assembly Bill A7737B; NY State Senate Bill S5473D. The Act became effective immediately upon Governor Hochul’s execution on Dec. 30, 2022 and applies to all actions commenced under CPLR 213(4) and in which a final judgment of foreclosure and sale has not been enforced. A.B. A7737B, §10. As such, the Act retroactively applies to pending actions, not just actions commenced after the effective date.

Read the full article on our website.

How SCOTUS Clarified the Spokeo Standard of “Concrete” Harm Necessary to Establish Article III Standing, and What It Means for the Future of Class Actions

Posted on by

Ana Tagvoryan, Deborah A. Skakel, Edward W. Chang, Scott E. Wortman, Jeffrey N. Rosenthal, Chenxi Jiao, and Harrison M. Brown

On June 25, 2021, the United States Supreme Court issued its decision in TransUnion LLC v. Ramirez, No. 20-297, 2021 WL 2599472 (U.S. June 25, 2021) (“TransUnion”), providing much needed clarity regarding the type of “concrete” harm necessary to establish a plaintiff’s standing under Article III of the United States Constitution.

In a 5-4 decision authored by Justice Kavanaugh, the Court expounded on its ruling in Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), using several examples to illustrate how to measure the harm plaintiffs allege from a statutory violation. As Justice Kavanaugh succinctly stated: “No concrete harm, no standing.”

In TransUnion, the lower court certified a class of 8,124 absent class members who purportedly suffered injury under the Fair Credit Reporting Act (“FCRA”) because TransUnion had placed an alert on their credit report indicating that the consumer’s name was a “potential match” to a name on the list maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) of terrorists, drug traffickers, and other serious criminals.

To read the full client alert, please visit our website. 

New York’s COVID-19 Eviction and Foreclosure Prevention and Small Businesses Acts Extended to August 31, 2021—What You Need to Know

Posted on by

Wayne Streibich, Diana M. Eng, and Alina Levi

Lenders, mortgage servicers, and other financial institutions should take note that New York State passed legislation extending the protections set forth in the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 and the COVID-19 Emergency Protect Our Small Businesses Act of 2021 to August 31, 2021. Thus, the requirements and stays with respect to residential and commercial foreclosures and evictions imposed by the legislation remain effective through August 31, 2021.

On May 4, 2021, Governor Cuomo signed a bill extending both (i) the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (the “EEFPA”); and (ii) the COVID-19 Emergency Protect Our Small Businesses Act of 2021 (“SBA”), to August 31, 2021 (S.6362-A/A.7175-A) (the “Extended Act”). The purpose of the Extended Act, which is effective immediately, is to maintain protections prohibiting residential and commercial evictions, foreclosure proceedings, credit discrimination, and negative credit reporting related to the COVID-19 pandemic until August 31, 2021, if the borrowers, mortgagors, and/or tenants submit the required Hardship Declaration with the foreclosing party, landlord/their agent, or the Court. In practice, however, some courts have extended the stay even without the required Hardship Declaration.  

Highlights of the Extended Act are summarized below, but please refer to the full text of the Extended Act for additional information.

LIMITS OF THE EXTENDED ACT

  • The Extended Act still does not apply to residential eviction and foreclosure actions involving vacant and abandoned properties, listed on the statewide vacant, and abandoned property electronic registry (as such terms are defined in Sections 1309(2) and 1310 of New York’s Real Property Actions and Proceedings Law) prior to March 7, 2020, and which remain on such registry.
  • The Extended Act also does not apply to, and does not affect, any residential or commercial mortgage loan made, insured, purchased, or securitized by a corporate governmental agency of the state constituted as a political subdivision and public benefit corporation or the rights and obligations of any lender, issuer servicer, or trustee of such obligations.
  • The portion of the Extended Act addressing the SBA still only applies to commercial tenants, who independently own and operate their business, have 50 or fewer employees, and experience financial hardship and are unable to pay the rent or other financial obligations under the lease in full or obtain an alternative suitable commercial property as a result of:

      1. significant loss of revenue during the COVID-19 pandemic; and/or

      2. significant increase in necessary expenses related to providing personal protective equipment to employees or purchasing and installing other protective equipment to prevent the transmission of COVID-19 within the business; and/or

      3. moving expenses and difficulty in securing an alternative commercial property make it a hardship for the business to relocate to another location.

  • The Extended Act still permits residential and commercial evictions of tenants, who persistently and unreasonably engage in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or cause a substantial safety hazard to others.

To read the full client alert, please click here. 

The Hunstein Effect—Examining the Eleventh Circuit’s Ruling and What’s Next for Debt Collectors and Their Third-Party Service Providers

Posted on by

Wayne Streibich, Nicole R. Topper, Scott E. Wortman, and Anthony Richard Yanez

The U.S. Court of Appeals for the Eleventh Circuit has delivered a novel and highly consequential interpretation of the Fair Debt Collection Practices Act that is potentially transformative for debt collectors and their third-party service providers.

On April 21, 2021, in Hunstein v. Preferred Collection and Management Services, Inc., — F.3d — (2021), the U.S. Court of Appeals for the Eleventh Circuit issued a decision on a case of first impression, finding that a debt collector’s transmittal of a consumer’s personal information to its letter vendor constituted a prohibited third-party communication “in connection with the collection of any debt” within the meaning of section 1692c(b) of the Fair Debt Collection Practices Act (“FDCPA”). As discussed below, this ruling has broad ranging ramifications for the accounts receivable management industry and will likely foster a new wave of litigation under the FDCPA.

By way of background, this lawsuit originated from unpaid bills for medical treatment at a hospital. The hospital assigned the unpaid bills to a debt collector that had contracted with a third-party vendor for printing and mailing its collection letters. The collector electronically transmitted to its vendor certain information about the plaintiff/debtor such as: (1) his status as a debtor, (2) the exact balance of his debt, (3) the entity to which he owed the debt, (4) that the debt concerned his son’s medical treatment, and (5) his son’s name. The vendor then used that information to generate and send a dunning letter to the debtor. The debtor received the dunning letter and then filed a lawsuit in the Middle District of Florida alleging violations of both the FDCPA and the Florida Consumer Collection Practices Act. The district court dismissed the lawsuit for failure to state a claim by concluding that the debtor had not sufficiently alleged that the collector’s transmittal of information to the letter vendor was a communication “in connection with the collection of a debt.” The debtor then appealed to the Eleventh Circuit.

To read the full client alert, please click here.

CFPB Issues Debt Collection Interim Final Rule Due to the Ongoing COVID-19 Pandemic

Posted on by

Wayne Streibich, Diana M. Eng, and Chenxi Jiao

The CFPB’s interim final rule amends Regulation F to, among other things, (i) require debt collectors to provide written notice to certain consumers about the CDC’s temporary eviction protections; and (ii) prohibit debt collectors from misrepresenting that a consumer is ineligible for eviction protection under the CDC’s moratorium. Debt collectors should take the necessary steps to ensure compliance with the amendment.

On April 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued an interim final rule to amend Regulation F at 12 C.F.R. § 1006 (the “IFR”) to require debt collectors to provide consumers with disclosures relating to the Centers for Disease Control and Prevention (“CDC”) order, titled “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19” (86 FR 16731 (Mar. 31, 2021)) (the “CDC Order”). The CDC Order “generally prohibits a landlord, owner of a residential property, or other person with a legal right to pursue eviction or possessory action from evicting for non-payment of rent any person protected by the CDC Order from any residential property in any jurisdiction in which the CDC Order applies.” This prohibition applies to any agent or attorney acting on behalf of a landlord or owner of a residential property. Notably, however, the CDC Order does not cover foreclosure on a home mortgage.

The CFPB issued the IFR due to its concerns that consumers are unaware of their protections under the CDC Order and that debt collectors may be engaging in eviction-related conduct that violates the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”). The IFR applies to “debt collectors,” “consumers,” and “debt,” as defined in the FDCPA.

To read the full client alert, please click here.

CFPB Proposes COVID-19 Rule to Amend Its Mortgage Servicing Rule and Provide Additional Guidance Related to the Pandemic

Posted on by

Jonathan K. Moore, Scott D. Samlin, Chenxi Jiao, and Louise Bowes Marencik

On April 5, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a notice of proposed rulemaking that proposes amendments to its Mortgage Servicing Rule (the “Proposed Rule”) to provide additional assistance for borrowers impacted by the COVID-19 emergency. The pandemic has resulted in nearly three million borrowers with delinquent mortgages, which is more homeowners in default than any time since the peak of the Great Recession in 2010. Nearly 1.7 million borrowers will exit forbearance programs in September and the following months upon expiration of the maximum term of 18 months in forbearance for federally backed mortgage loans. The Proposed Rule is intended to ensure that these homeowners have the opportunity to be evaluated for loss mitigation options prior to their loans being referred to foreclosure.

If finalized, the Proposed Rule would apply to all mortgages on a principal residence and amend Regulation X (12 CFR 1024).

To read the full client alert, please click here.