Consumer Financial Services Watch

News and developments related to consumer financial services, litigation, and enforcement.

 

1
House Energy and Commerce Committee Calls for Modernizing the TCPA
2
The Eighth Circuit Charts a Course for Data Privacy Cases in the Wake of Spokeo for Technical Violations of a Statute That Result in no Harm
3
Inclusive Communities Excluded from Court—Plaintiff Can’t Meet Supreme Court Standard for Disparate-Impact Claims under the Fair Housing Act
4
Who Bears the Risk? Federal Court Holds That a Purchaser of Unsecured Consumer Loans Is the “True Lender,” Voiding Enforceability of the Loans
5
Webinar: Developments in Student Loan Servicing with Lessons Learned from Mortgage Servicing
6
Change Order: The CFPB Previews Its Proposed FDCPA Regulations
7
Hold On, You Didn’t Overpay for That: Courts Address New “Overpayment” Theory from Plaintiffs in Data Breach Cases
8
LIGHT READING FOR THE DOG DAYS OF SUMMER: CFPB FINALIZES AMENDMENTS TO MORTGAGE SERVICING REGULATIONS
9
HUD’s Approach to Disparate Impact Remains Under Fire—Lending Trade Associations Weigh In
10
CFPB Issues Notice of Proposed Rulemaking to Clarify “Know Before You Owe”; Some Welcome Guidance on TRID but Cure and Liability Issues Not Addressed

House Energy and Commerce Committee Calls for Modernizing the TCPA

By Pamela Garvie, Andrew Glass, Greg Blase, Peter Nelson and Elana Reman

On September 22, 2016 the House Energy and Commerce Committee’s Subcommittee on Communications and Technology held a hearing on modernizing the TCPA. The hearing is significant because it marks the first time that lawmakers on both sides of the aisle have said the TCPA needs to be updated to reflect changing technology and business practices, and to draw a distinction between “harassing, malicious” calls from “bad actors” and “legitimate, informational calls that consumers want.” Republican members of the Subcommittee have raised concerns about the TCPA during past FCC oversight hearings, but this hearing actually was held at the request of full Committee Ranking Democrat Member Frank Pallone Jr. (D-NJ), Subcommittee Ranking Democrat Anna Eshoo (D-CA), and Congresswoman Jan Schakowsky (D-IL).

Both Democratic and Republican Committee members who spoke in the hearing generally expressed a desire for stronger consumer protections against unwanted robocalls, but lamented that the TCPA, in its current form, falls short. The Act fails on two fronts: it is unsuccessful at protecting consumers against unwanted robocalls and phone scams because bad actors intentionally disregard the TCPA, and it has had the unintended consequence of capturing good actors in the crosshairs, subjecting them to litigation for alleged non-compliance despite their good faith efforts to comply with the law. Subcommittee Chairman Greg Walden (R-OR) highlighted that for small businesses attempting to serve their customers through desired alerts and communications, a massive TCPA class-action lawsuit could mean bankruptcy.

Demonstrating a bipartisan desire to move forward with TCPA reform, Congresswoman Eshoo and Congresswoman Marsha Blackburn (R-TN) both pressed the panel of witnesses for specific recommendations for changes to the TCPA.

Michelle Turano, Vice President of Public Policy and Government Affairs at WellCare Health Plans, a company that provides government-sponsored managed health care services to predominantly low-income, elderly, and transient customers, discussed how the FCC’s declaratory ruling hinders WellCare’s ability to provide its customers, many of whom do not have land lines or email, with vital health alerts, preventative screening reminders, refill notifications, and care instructions. Specifically, Ms. Turano recommended that Congress clarify that the provision of a phone number to a HIPAA-covered entity or business associate for interactions subject to HIPAA should constitute prior express consent for health care treatment and payment communications to that number. Ms. Turano also addressed the challenges of compliance with the FCC’s “one call” safe harbor for reassigned numbers, which imports on the caller knowledge of the reassigned number based off of one unanswered phone call, effectively penalizing the caller for attempting to provide consumers with state-mandated information or other vital health care information.

Shaun Mock, CFO of Snapping Shoals Electric Membership Corporation, a co-op providing electricity to many rural, low-income Americans, also focused on the challenges that reassigned numbers pose to his company, and urged that there be some “good faith” requirement that parties receiving unwanted calls due to a number reassignment notify the company before filing a TCPA suit. Richard Shockey, of Shockey Consulting, discussed the use of various technologies to identify or block unwanted calls and texts. He also recommended the adoption of safe harbor and good-faith provisions to address some of the unintended consequences of the TCPA and the FCC’s interpretation of it. Spencer Waller, a professor and director of the Institute for Consumer Antitrust Studies at Loyola University Chicago, recommended increasing the TCPA enforcement power of state attorneys general and the FTC.

In general, Democratic Members emphasized that Congress should not approve more loopholes to the TCPA, but instead should strengthen protections for consumers. Republican Members emphasized the need for finding solutions that will protect consumers from harassing, malicious calls they don’t want and ensure they get legitimate calls they do want. Chairman Walden and Rep. Robert Latta (R-OH) also expressed concerns with the broad definition of an autodialer, which has led to confusion over who must comply with TCPA restrictions.

Despite their differences in focus, Democrats and Republicans expressed a consensus that modernization of the TCPA is long overdue. They also called for additional hearings on the issue. While many roadblocks still remain, the hearing still helped set the stage for what hopefully will be a productive, bipartisan reform effort to allow an aging law to keep pace with 21st century technology, consumer preferences, and business practices.

The Eighth Circuit Charts a Course for Data Privacy Cases in the Wake of Spokeo for Technical Violations of a Statute That Result in no Harm

By Ryan M. Tosi and Lindsay Sampson Bishop

The Eighth Circuit recently became the one of the first federal Courts of Appeals to apply the U.S. Supreme Court’s Article III standing decision in Spokeo Inc. v. Robins to a data privacy case. The Eighth Circuit affirmed the dismissal of a putative class action complaint on the basis that the plaintiff failed to allege a concrete injury that “actually exist[s],” is “real,” and is not “abstract.” The lawsuit alleged that Charter Communications, Inc. (“Charter”), a company providing cable services, retained the personally identifiable information (“PII”) of its former customers well after the customers’ cancellation of their services. Because the plaintiff asserted only a technical violation of the statute, without alleging how that violation had actually injured him, the Eighth Circuit found that, under Spokeo, the plaintiff failed to plead a concrete and particularized injury sufficient to establish standing to file suit in federal court.

To read the full alert, click here.

Inclusive Communities Excluded from Court—Plaintiff Can’t Meet Supreme Court Standard for Disparate-Impact Claims under the Fair Housing Act

By Paul F. Hancock, Andrew C. Glass, Olivia Kelman, and Joshua Butera

K&L Gates LLP previously observed that the U.S. Supreme Court’s recognition of disparate-impact claims under the Fair Housing Act in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. had a “silver lining.” In particular, the Supreme Court identified that a plaintiff must meet a rigorous standard to establish a prima facie case of disparate-impact discrimination under the Fair Housing Act. On remand, the U.S. District Court for the Northern District of Texas applied that standard, holding that the plaintiff fell far short of meeting the Supreme Court’s “proof regimen” necessary to sustain a disparate-impact claim. The district court’s decision reaffirms that, in interpreting the Supreme Court’s decision properly, a Fair Housing Act plaintiff proceeding under a disparate-impact theory faces a significant burden.

To read the full alert, click here.

Who Bears the Risk? Federal Court Holds That a Purchaser of Unsecured Consumer Loans Is the “True Lender,” Voiding Enforceability of the Loans

By Irene C. Freidel and David D. Christensen

A California federal court has held that the purchaser of small-dollar consumer loans is the “true lender” and thus subject to state usury laws, even though a separate tribal entity funded and closed the loans in its own name. See Consumer Financial Protection Bureau v. CashCall, Inc*. The court’s holding, which adopts the arguments of the Consumer Financial Protection Bureau (“CFPB”) and renders the loans serviced by CashCall unenforceable, challenges the business model that many marketplace lending platforms use to offer alternative, unsecured loans to consumers. Generally speaking, partnerships between marketplace platforms and tribal entities, state-chartered (and federally insured) banks, or national banks are intended to protect the platforms from the substantial licensing and compliance burden of state lending and licensing laws, and also to permit loans that might otherwise exceed the borrower’s home state usury limit. The recent CashCall decision, however, is another reminder that state and federal regulators, as well as plaintiffs’ attorneys, may be able to pierce these partnerships where a court finds that the financial institution funding and closing the loan does not bear substantial risk on those loans.

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Webinar: Developments in Student Loan Servicing with Lessons Learned from Mortgage Servicing

Please join us for a webinar on student loan servicing covering a wide range of developments in regulatory, enforcement and litigation as well as the practical application of lessons learned in parallel servicing industries.

Panelists:
David E. Fialkow, Partner, K&L Gates
Hollee M. Watson, Associate, K&L Gates

To register, click here. Log-in instructions will be sent via email the day before the webinar. You must register to receive the log-in instructions.

Change Order: The CFPB Previews Its Proposed FDCPA Regulations

By Andrew C. Glass, Brian M. Forbes, Gregory N. Blase, and Roger L. Smerage

The Consumer Financial Protection Bureau (“CFPB”) recently took the next step toward promulgating regulations under the Fair Debt Collection Practices Act (“FDCPA”) by releasing its “Outline of Proposals under Consideration and Alternatives Considered” (the “Outline”). The Outline sheds light on the approach the CFPB may take in regulating the debt-collection industry. As detailed in this alert, the proposed approach would implement comprehensive and substantial changes.

To read the full alert, click here.

Hold On, You Didn’t Overpay for That: Courts Address New “Overpayment” Theory from Plaintiffs in Data Breach Cases

By Andrew C. Glass, David D. Christensen and Matthew N. Lowe

With the ever-increasing amount of personal information stored online, it is unsurprising that data breach litigation has become increasingly common. A critical issue in nearly all data breach litigation is whether a plaintiff has standing to pursue claims—especially where there is no evidence of actual fraud or identity theft resulting from the purported data breach. The plaintiffs’ bar has pursued a litany of legal theories in the attempt to clear the standing hurdle, including the recent theory of “overpayment” (a/k/a “benefit of the bargain” theory). Under this theory, the plaintiff alleges that the price for the purchased product or service—whether sneakers, restaurant meals, or health insurance—included some indeterminate amount allocated to data security. Depending on how the theory is framed, the purported “injury” is either that the plaintiff “overpaid” for the product or service, or that the plaintiff did not receive the “benefit of the bargain,” because the defendant did not appropriately use the indeterminate amount to provide adequate data security. Despite plaintiffs’ attempts to establish standing through this novel theory, courts have limited its applicability in a variety of ways discussed in this alert.

To read the full alert, click here.

LIGHT READING FOR THE DOG DAYS OF SUMMER: CFPB FINALIZES AMENDMENTS TO MORTGAGE SERVICING REGULATIONS

By Brian M. Forbes, Andrew C. Glass, Gregory N. Blase, Robert W. Sparkes III and Matthew N. Lowe

On August 4, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued its final rule setting forth amendments and clarifications to mortgage servicing regulations. These changes follow a prior round of revisions to mortgage servicing regulations that went into effect in January 2014. Since proposing the amendments to the regulations in November 2014, the CFPB received and reviewed hundreds of comments. At just over 900 pages in length, the final rule addresses numerous areas of mortgage servicing, including the following:

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HUD’s Approach to Disparate Impact Remains Under Fire—Lending Trade Associations Weigh In

By Paul F. Hancock, Andrew C. Glass, John L. Longstreth, Olivia Kelman and Joshua Butera

K&L Gates LLP recently presented the views of the major banking and lending trade associations, as amici curiae, in a federal challenge to HUD’s Fair Housing Act disparate-impact rule. The views expressed are those of the American Bankers Association, the American Financial Services Association, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Financial Services Roundtable, the Independent Community Bankers of America®, and the Mortgage Bankers Association. The HUD rule challenge is likely to have a far-reaching effect on the housing industry and affiliated sectors of the economy. The lending industry argued that the HUD rule fails to comply with binding Supreme Court precedent governing disparate-impact claims. Moreover, HUD—which lacks the power to legislate—impermissibly adopted a legal standard that Congress enacted for a different civil rights law. And compounding its error, HUD cherry-picked only the plaintiff-friendly portions of that standard while ignoring substantial limitations Congress had imposed. Amici filed their brief to assist the trial court in understanding the full potential effect of the HUD disparate-impact rule, urging the court to overturn the rule.

To read the full alert, click here.

CFPB Issues Notice of Proposed Rulemaking to Clarify “Know Before You Owe”; Some Welcome Guidance on TRID but Cure and Liability Issues Not Addressed

By Jennifer J. Nagle and Hollee M. Watson

On July 29, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a much anticipated Notice of Proposed Rulemaking (“NPRM”) on the TILA-RESPA Integrated Disclosure rule (“TRID” or “Know Before You Owe”), which went into effect on October 3, 2015, and has posed significant implementation challenges. The CFPB previously announced that it would issue proposed rulemaking in an April 28, 2016 letter to mortgage industry trade groups, in which it acknowledged the “many operational challenges” presented by TRID and noted that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

CFPB Director Richard Cordray expects that the “proposed updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process.” See Consumer Financial Protection Bureau Proposes Updates to “Know Before You Owe” Mortgage Disclosure Rule. While the NPRM does contain some helpful guidance, there are also some notable omissions that may disappoint industry participants.

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