Consumer Financial Services Watch

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

 

1
Federal Court Strikes Down FinTech Charter
2
American Bankers Association, Consumer Bankers Association, and Housing Policy Council Joint Comments on HUD’s Proposed Rule on the Fair Housing Act’s Standard of Disparate Impact
3
Proposed Regulations Under the California Consumer Credit Privacy Act
4
The CFPB and the Fed Adjust Regulation CC for Inflation
5
Deepening the Divide: D.C. Circuit Continues Circuit Split Regarding Standing in Data Breach Class Action Based on Risk of Future Harm
6
DACA Recipients Are Ineligible for FHA Mortgage Insurance Officially, but Lending to DACA Recipients and Other Immigrant Communities Is Subject to Many Unresolved Compliance Challenges
7
“Any Defendant” Does Not Really Mean “Any Defendant”
8
Ninth Circuit U-Turns And Approves Nationwide Class Settlement In Automobile Class Action Involving Potential Variations In States’ Laws
9
HMDA Reality Check: What You Can and Cannot Conclude from New Mortgage Loan Data
10
What Is in a Name? The Third Circuit Holds That Debt Buyers Can Be Debt Collectors under the FDCPA

Federal Court Strikes Down FinTech Charter

By Daniel S. Cohen

On October 21, Judge Victor Marrero of the United States District Court for the Southern District of New York issued an order in Lacewell v. Office of the Comptroller of the Currency (No. 18-cv-8377) striking down the Office of the Comptroller of the Currency’s (“OCC”) special purpose national bank charter for fintechs (“FinTech Charter”). After years of challenging the FinTech Charter—a charter authorizing fintechs to engage in non-depository banking activities—the New York Department of Financial Services (“NYDFS”) has, for now, succeeded in overturning the charter. The OCC defended its authority by arguing that 12 CFR Part 5.20(e)(1) is consistent with the National Bank Act (“Act”) and authorizes the OCC to issue special purpose charters to nondepository banking institutions. The Court disagreed, finding that the National Bank Act only authorizes the OCC to charter depository institutions. The Court concluded that the Act allows the OCC to charter institutions engaged in the “business of banking,” and the “business of banking” necessarily includes accepting deposits. Therefore, the FinTech Charter is beyond the OCC’s authority.

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American Bankers Association, Consumer Bankers Association, and Housing Policy Council Joint Comments on HUD’s Proposed Rule on the Fair Housing Act’s Standard of Disparate Impact

By Paul F. Hancock and Olivia Kelman

On behalf of the American Bankers Association, Consumer Bankers Association, and Housing Policy Council, K&L Gates Partner Paul F. Hancock and Associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD”) on October 18, 2019, addressing the proposed amendments to HUD’s interpretation of the Fair Housing Act’s disparate impact standard. The preamble to the proposed rule states that HUD “proposes to amend” its disparate impact regulation “to better reflect the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015).” [1] In that decision, the Supreme Court articulated the standards for, and limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the proposed amendments properly reflect binding precedent and provide necessary guidance regarding the application of the law, and supports the amendments in HUD’s Proposed Rule, with some suggested modifications. A copy of the comment is available here.

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Proposed Regulations Under the California Consumer Credit Privacy Act

By Linda C. Odom and John ReVeal

On October 10, 2019, the California Attorney General issued proposed regulations under the California Consumer Privacy Act (CCPA). The Attorney General will hold four public hearings, on December 2 through December 5, 2019, during which statements or comments may be presented, orally or in writing. Written comments in addition to those submitted at the public hearing also may be mailed or emailed to the Attorney General’s office until 5:00 p.m. on December 6, 2019.

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The CFPB and the Fed Adjust Regulation CC for Inflation

By John ReVeal and Daniel S. Cohen

On June 24, 2019, the Consumer Financial Protection Bureau (“CFPB”) and the Federal Reserve Board (“Fed”) (collectively, the “Agencies”) amended Regulation CC, which implements the Expedited Funds Availability Act (the “EFAA”), to adjust for inflation the amount of funds depository institutions must make available to their customers after funds have been deposited and the civil liabilities for failing to meet these obligations (the “Amendment”).  However, depository institutions will not need to adjust their compliance procedures right away.  To “help ensure that institutions have sufficient time to implement the adjustments,” the Agencies set July 1, 2020 as the compliance deadline. Below is a summary of the key funds availability rules and how they are changed (or not) by the Amendment. 

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Deepening the Divide: D.C. Circuit Continues Circuit Split Regarding Standing in Data Breach Class Action Based on Risk of Future Harm

Authors: Andrew C. Glass, Matthew N. Lowe

The D.C. Circuit Court of Appeals recently reaffirmed its position that a plaintiff can establish Article III standing (federal court subject matter jurisdiction) based solely on the risk of potential future harm following a data breach involving his or her personal information. The decision continues the split between the federal circuit courts of appeals regarding the issue.

In re Office of Personnel Management arose out of an alleged 2014 data breach of the eponymous office (the “OPM”).[1] The plaintiffs, current and former federal employees and their unions, sought to represent a putative class of individuals whose personal information, including social security numbers, addresses, and birth dates, was allegedly exposed in the breach.[2] The plaintiffs asserted that certain putative class members had experienced financial fraud or identity theft as a result of the breach and that other members faced the “ongoing risk that they … will become victims of financial fraud and identity theft in the future.”[3] The district court ruled that the plaintiffs lacked standing to sue, holding that the putative class members who had allegedly experienced financial fraud had not pleaded facts demonstrating that the fraud was traceable to the OPM, and that the members who had only pleaded risk of future injury did not plausibly allege that such injury was either substantial or clearly impending.[4]

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DACA Recipients Are Ineligible for FHA Mortgage Insurance Officially, but Lending to DACA Recipients and Other Immigrant Communities Is Subject to Many Unresolved Compliance Challenges

By Andrew C. Glass, Gregory N. Blase, and Daniel S. Cohen

For the past six months, the mortgage lending industry has reported receiving conflicting messages from the Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”) regarding Deferred Action for Childhood Arrivals (“DACA”) recipients’ eligibility for FHA-insured mortgages. In December 2018, Senators Robert Menendez (D-NJ), Cory Booker (D-NJ), and Catherine Cortez Masto (D-NV) asked HUD to clarify whether it has “developed a policy regarding DACA recipients’ eligibility for FHA-insured mortgage loans.” If not, the senators requested HUD to “promptly provide clear and written guidance to FHA-approved lenders clarifying” that DACA recipients are not ineligible for FHA insurance simply because of their DACA status. [1] In response, HUD issued a letter explaining that is has “not implemented any policy changes” with respect to “FHA’s eligibility requirements” for non-U.S. citizens who are lawful residents. HUD reiterated that “non-U.S. citizens without lawful residency are ineligible for FHA financing.” [2] In early 2019, Fannie Mae issued a guide regarding “non-citizen borrower eligibility,” explaining that mortgages provided to DACA recipients are eligible to be purchased by Fannie Mae because DACA recipients are lawful nonpermanent residents because they have a valid Employment Authorization Document number. [3] During congressional testimony in April, HUD Secretary Ben Carson seemingly clarified that DACA recipients are eligible for FHA-insured mortgages. The secretary commented that “plenty of DACA recipients … have FHA mortgages,” and that he would be surprised if lenders received statements to the contrary from HUD staff.

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“Any Defendant” Does Not Really Mean “Any Defendant”

The U.S. Supreme Court Limits Parties Entitled to Seek Removal of Class Action Claims Under CAFA

Authors: Ryan M. TosiScott G. Ofrias

In a recent decision addressing federal court jurisdiction, the U.S. Supreme Court held that third-party counterclaim defendants cannot remove class action claims to federal court, holding that they are not “defendants” entitled to remove the action from state court to federal court under either the general removal statute, [1] or the federal Class Action Fairness Act (“CAFA”). [2] In a 5-4 decision in the matter of Home Depot U.S.A., Inc. v. Jackson, [3] the Court concluded that only a party sued by the original plaintiff is entitled to remove, and that CAFA’s expansion of removal authority to “any defendant” does not apply to third-party defendants that are not parties to the original action.

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Ninth Circuit U-Turns And Approves Nationwide Class Settlement In Automobile Class Action Involving Potential Variations In States’ Laws

Authors: Brian M. Forbes, Robert W. Sparkes, III, Matthew N. Lowe

In a recent 8-3 en banc decision, the Ninth Circuit affirmed the approval of an estimated $210 million class action settlement in In re Hyundai and Kia Fuel Economy Litigation. The Hyundai decision is significant because it reversed an earlier, controversial decision by a three-judge panel of the Ninth Circuit, which rejected the nationwide settlement because the district court failed to “rigorously analyze potential differences in state consumer protection laws” before certifying the class for settlement. The Ninth Circuit’s en banc decision offers some clarity for both plaintiffs and defendants attempting to settle class action litigation in the Ninth Circuit, especially those involving proposed nationwide classes.

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HMDA Reality Check: What You Can and Cannot Conclude from New Mortgage Loan Data

Authors: Paul F. Hancock, Olivia Kelman

Extensive data about mortgage lending activity collected pursuant to the Home Mortgage Disclosure Act (“HMDA”) was just made available to the public for the first time on March 29, 2019. More detail about borrowers, about underwriting, and about loan features is now available than ever before, and that information also is easier for the public to access than it ever has been. The mortgage lending industry should expect that the expanded HMDA data will receive significant attention and scrutiny from private organizations and individuals, and the data is certain to spark controversy about the racial, ethnic and gender fairness of mortgage lending.

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What Is in a Name? The Third Circuit Holds That Debt Buyers Can Be Debt Collectors under the FDCPA

Authors: Gregory N. BlaseAndrew C. GlassRoger L. Smerage

“Debt buyers”—entities that purchase debt from original creditors or other downstream assignees—often view themselves as being different from “debt collectors”—entities that act to collect debts from obligors. But in Barbato v. Greystone Alliance, LLC, [1] the U.S. Court of Appeals for the Third Circuit disagreed, holding that debt buyers can be debt collectors under the Fair Debt Collection Practices Act (“FDCPA”). Specifically, the Third Circuit ruled that part of the FDCPA’s definition of “debt collector” encompasses debt buyers, regardless of whether they outsource collection activities to third parties.

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