Consumer Financial Services Watch

News and developments related to consumer financial products and services.

 

1
The Second Payment Services Directive – Political Agreement Nears
2
Recent Legislative Developments Will Create Headaches and Increase Financial Risks for Mortgage Servicers and Originators
3
Happy Birthday, CFPB!
4
Federal District Court Upholds CFPB Claims Against Debt Collection Law Firm But Rejects Open-Ended Statute of Limitations Arguments
5
New CFPB/DOJ Enforcement Action Incentivizes Indirect Auto Lenders to Limit Discretionary Dealer Markups
6
Are Public Companies Required to Disclose that the Government is Investigating Them?
7
Connecticut Mandates Identity Theft Services for SSN Data Breaches
8
Advisory Rules Committee Adopts Amendments to Bankruptcy Rule 3002.1
9
New Flood Insurance Coverage and Escrow Requirements
10
Recent Developments in State Mortgage Servicing Laws

The Second Payment Services Directive – Political Agreement Nears

By: Jacob GhantyOliver Lewis

The original Payment Services Directive (2007/64/EC) (“PSD1”) was introduced to provide greater price transparency for users of payment services and to create a level, competitive playing field among providers of different types of payment service. Prior to implementation of PSD1, many types of payment service were not regulated, even if certain types of payment service provider, for example banks, were in some way regulated. However, since implementation of PSD1 in November 2009, the current regulatory regime has been unable to keep up with the pace of the fast moving payment services sector.

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Recent Legislative Developments Will Create Headaches and Increase Financial Risks for Mortgage Servicers and Originators

By: J. Stephen Barge,  Kenneth S. Wear,  Christine M. Green

Two recent legislative developments, which have largely gone unnoticed, will dramatically raise the stakes for mortgage servicers and originators who file IRS Forms 1098. First, the Trade Preferences Extension Act of 2015, signed into law on June 29, 2015, more than doubled the financial penalties imposed for filing IRS Forms 1098 with incorrect information. Second, proposed legislation approved by the Senate Finance Committee on July 21, 2015 to extend certain expired tax provisions (a so-called “extenders bill”) would require servicers to include new information on IRS Form 1098. Although the extenders bill’s new required information may be relatively straightforward in basic situations, delinquent and modified loans present unique challenges. With the new increased penalties in place, the stakes to get it right have never been higher. Because there is scant IRS guidance upon which servicers may rely regarding various information reporting issues, it will be increasingly critical for the IRS to adhere to the legal standard that penalties do not apply when a servicer adopts and follows reasonable reporting methods in good faith.

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Happy Birthday, CFPB!

By: Stephanie Robinson, Anjali Garg

While the Dodd-Frank Act turns five, today marks the fourth birthday of the CFPB. Despite a controversial start between recess appointments and enforcement attorneys at examinations, the CFPB has come a long way since its inception. The Bureau has brought more than 90 enforcement actions, filed numerous complaints, and obtained countless supervisory agreements in its four short years. It has expanded its regulatory reach through the newly implemented mortgage servicing rules and nonbank supervisory program. Just recently, the CFPB issued its first agency decision in a contested administrative proceeding, resulting in a disgorgement figure nearly 17 times the amount originally recommended in the proceeding. The CFPB has fundamentally changed the consumer finance landscape through its regulatory, enforcement, and supervisory activities. Here we highlight a few ways that the CFPB has made a difference in the areas of nonbank supervision; consumer complaints; unfair, deceptive, and abusive acts and practices; and individual liability.

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Federal District Court Upholds CFPB Claims Against Debt Collection Law Firm But Rejects Open-Ended Statute of Limitations Arguments

By: Ori Lev

On July 14, 2015, the U.S. District Court for the Northern District of Georgia denied defendants’ motion to dismiss the Consumer Financial Protection Bureau’s (CFPB) claims in CFPB v. Frederick J. Hanna & Associates. The CFPB’s complaint in this case alleges that the defendants, a law firm and its principals, operate “less like a law firm than a factory” that files tens of thousands of collection cases each year. The complaint alleges that the defendants filed over 350,000 collection suits each year, but that attorneys spend less than a minute reviewing and approving each suit. The CFPB’s complaint alleges that the lack of attorney involvement constitutes a violation of the Fair Debt Collection Practices Act’s (FDCPA) and the Consumer Financial Protection Act’s (CFPA) prohibitions on deceptive practices because the collections actions filed by the defendants represented to consumers that attorneys were meaningfully involved in filing those actions when in fact they were not. The CFPB’s complaint also alleges that the defendants’ use of affidavits in which affiants represented they had personal knowledge of the validity and ownership of the debts violated these same statutes.

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New CFPB/DOJ Enforcement Action Incentivizes Indirect Auto Lenders to Limit Discretionary Dealer Markups

By: Melanie Brody, Ori LevJay M. Willis

On July 14, 2015, the Consumer Financial Protection Bureau (“CFPB”) and the U.S. Department of Justice (DOJ) announced a joint settlement of allegations that American Honda Finance Corporation (“Honda”), an indirect auto lender associated with the car manufacturer of the same name, violated the federal Equal Credit Opportunity Act by discriminating against African-American, Hispanic, and Asian and Pacific Islander borrowers in the pricing of auto loans. Notably, the terms of the CFPB’s consent order may indicate how indirect auto lenders in the future can avoid the most onerous financial penalties associated with allegedly unlawful pricing practices.

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Are Public Companies Required to Disclose that the Government is Investigating Them?

By: Jon Eisenberg

For many public companies, the first issue they have to confront after they receive a government subpoena or Civil Investigative Demand (“CID”) is whether to disclose publicly that they are under investigation. Curiously, the standards for disclosure of investigations are more muddled than one would expect. As a result, disclosure practices vary—investigations are sometimes disclosed upon receipt of a subpoena or CID, sometimes when the staff advises a company that it has tentatively decided to recommend an enforcement action, sometimes not until the end of the process, and sometimes at other intermediate stages along the way. In many cases, differences in the timing of disclosure may reflect different approaches to disclosure. We discuss below the standards that govern the disclosure decision and practical considerations. We then provide five representative examples of language that companies used when they disclosed investigations at an early stage.

To read the full alert, click here.

Connecticut Mandates Identity Theft Services for SSN Data Breaches

By: Holly K. Towle

On June 30, 2015, Connecticut’s governor signed into law an amendment to the state’s data-security-breach-notice statute to mandate “appropriate” identity theft prevention services for breaches involving social security numbers. Identity theft mitigation services are also required “if applicable” (e.g., if identify theft actually occurs). The services must be provided at no cost and for at least 12 months. The statute does not explain which identity theft “prevention” or “mitigation” services are mandated or which are “appropriate.”

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Advisory Rules Committee Adopts Amendments to Bankruptcy Rule 3002.1

By: Phoebe S. Winder, Ryan M. Tosi, Mary L. Thibadeau

Recently, the Advisory Committee on Bankruptcy Rules voted unanimously in favor of adopting the proposed changes to Bankruptcy Rule 3002.1 as originally published August 2014 and as discussed in our alert entitled “Have You Noticed Your Payment Change? Advisory Rules Committee Proposes Amendments to Bankruptcy Rule 3002.1” (available here). The Advisory Committee now seeks the Standing Committee’s final approval of the amended rule.

Although the rule amendments unfortunately do not address the difficulties surrounding the filing of timely and accurate payment change notices for home equity lines of credit or daily simple interest accounts, the report notes that the rule’s applicability to these accounts was discussed, and that “publication of a proposed amendment to address that issue will be sought later as part of a larger package of related amendments.” Thus, while it appears that the Committee is open to the idea of further amending Rule 3002.1 to address home equity lines of credit and daily simple interest accounts, the amendments will not be made in the near term.

The rule changes adopted by the Advisory Committee are not anticipated to go into effect until December 1, 2016; however, certain new “modernized” forms, including the proof of claim form and mortgage attachment, payment change notice form, and post-petition fee notice form, are scheduled to go into effect on December 1, 2015, pending approval by the Judicial Conference. K&L Gates will continue to monitor the proposed changes to the rule and will report on significant developments.

New Flood Insurance Coverage and Escrow Requirements

By: Kerri M. SmithChristopher G. Smith

Last week, federal regulators issued long-awaited flood regulations implementing the Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters”) and Homeowner Flood Insurance Affordability Act of 2014 (“HFIAA”). To those following the legislative and regulatory developments for federally mandated flood insurance, there won’t be any big surprises in the final rule. Indeed, in both Biggert-Waters and HFIAA, Congress prescribed relatively clear and specific requirements; thus, in responding to comments, the agencies were largely able to rely on statutory language to shape the new obligations. In a few instances, the agencies added clarity through new definitions or additional explanations, but largely the agencies followed the statutes’ road map.

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Recent Developments in State Mortgage Servicing Laws

By: Costas A. Avrakotos, Kerri M. Smith, Francis L. Doorley

New laws in Hawaii, Louisiana, Nevada, and Rhode Island will have consequences for mortgage servicers operating in those states. Recently enacted legislation in Hawaii and Nevada imposes new licensing and compliance obligations on servicers. In addition, legislation in Louisiana and Rhode Island set to go into effect has licensing implications for those entities that are mere holders of mortgage servicing rights (“MSRs”), but that do not actually service the loans.

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