April 24, 2015
Federal Trade Commission and Consumer
Financial Protection Bureau v. Green Tree
Servicing LLC
Consumer Financial Protection Bureau Refers to “Substantiation” for
the First Time; Federal Trade Commission and Consumer Financial
Protection Bureau File First Joint Order
SUMMARY
On April 21, 2015, in the most recent in a series of enforcement actions aimed at mortgage servicingrelated misconduct, the Consumer Financial Protection Bureau (the “CFPB”) and the Federal Trade
Commission (the “FTC” and, together with the CFPB, the “Agencies”) announced a joint action against
Green Tree Servicing LLC (“Green Tree”).
1
In their complaint (the “Complaint”) and proposed joint order
(the “Joint Order” and, together with the Complaint, the “Green Tree Action”), the Agencies allege that
Green Tree engaged in a number of unfair or deceptive acts or practices in violation of the Federal Trade
2
3
Commission Act (the “FTC Act”), and the Consumer Financial Protection Act (the “CFP Act”), as well as
4
5
conduct that violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Real
Estate Settlement Procedures Act.
6
Specifically, the Agencies allege that Green Tree failed to honor
modifications for loans transferred from other servicers and engaged in other misconduct with respect to
delinquent borrowers.
To resolve the Green Tree Action, Green Tree agreed to pay $48 million to consumers and an additional
$15 million penalty to the CFPB. Green Tree also agreed to correct the practices that were the subject of
the Complaint and the Joint Order and to establish and maintain a “comprehensive data integrity
program” designed to ensure the “accuracy, integrity and completeness of the data and other information”
with respect to accounts for which Green Tree performs servicing functions.
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7
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The Green Tree Action is notable for two reasons. First, it appears to be the first action in which the CFPB
has proceeded under the FTC’s long-standing “substantiation doctrine”, which requires advertisers (or, in
8
this case, consumer debt servicers) to have “substantiation” for a claim (express or implied) made to a
consumer at the time the claim is made, in order for the claim to not be “deceptive”. Second, the Green
Tree Action appears to be the first joint action by the CFPB and the FTC, marking what could be an
important development in the relationship between the Agencies, which have separate authority to pursue
unfair or deceptive acts or practices. The Green Tree Action also confirms that the Agencies remain
focused on abusive practices by mortgage servicers.
BACKGROUND
9
Section 5(a) of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce”
while Sections 1031 and 1036(a)(1)(B) of the CFP Act
10
prohibit covered persons from engaging “in any
unfair, deceptive, or abusive act or practice”. Generally, an act or practice is deceptive when it misleads
or is likely to mislead a consumer, the consumer’s interpretation is reasonable under the circumstances,
and the misleading act or practice is material. Misrepresentations or deceptive omissions of material fact
are considered deceptive acts or practices. Acts or practices are unfair if they cause substantial injury to
consumers that consumers cannot reasonably avoid themselves and that is not outweighed by
countervailing benefits to consumers or competition. In the Green Tree Action, the CFPB appears to
have relied on its authority under the CFP Act to pursue “deceptive” and “unfair” (but not “abusive”) acts
or practices.
As a mortgage servicer, Green Tree enters into contracts with mortgage lenders for the right to service
the mortgages for a fee.
Servicing activities include creating and sending monthly statements to
borrowers, collecting payments, processing payments, ensuring that the mortgaged property is insured
properly, and processing property tax payments.
The Complaint and the Joint Order allege that Green Tree engaged in the following unfair or deceptive
acts or practices, in violation of the FTC Act and the CFP Act:

making false or “unsubstantiated” representations to consumers that the consumers’
mortgage loans had certain unpaid balances, payment due dates, interest rates, monthly
payment amounts, delinquency statuses, and unpaid fees or other amounts due (together,
the “Loan Data”);

representing that consumers had to make a payment on their loans before Green Tree would
consider them for a loan modification, where such payment was not required or permitted by
law;

failing to review and respond to consumers’ requests to be considered for a short sale in a
timely manner;

representing to consumers that nonpayment of a mortgage loan would result in the arrest or
imprisonment of consumers or the seizure, garnishment, attachment, or sale of the
-2Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC
April 24, 2015
consumers’ property or wages, where such nonpayment would not have resulted in such
actions;

causing consumers’ bank accounts to be debited without their consent;

breaching contracts that consumers negotiated with prior servicers of the loans by not
honoring in-process loan modifications; and

contacting consumers’ employers and co-workers without the consumers’ consent.
11
CFPB REFERENCE TO SUBSTANTIATION
The Green Tree Action appears to be the first instance in which the CFPB has taken action when the
charge has been that the claim was “unsubstantiated” at the time it was made, rather than only false.
12
The FTC has long asserted that, under Section 5 of the FTC Act, an advertiser must have a “reasonable
basis” for express or implied claims that make objective assertions about an item or service advertised in
order for the claim to not be considered “deceptive”.
13
In the Complaint, the Agencies allege that, on
numerous occasions, Green Tree’s representations to consumers regarding Loan Data were false or
were “not substantiated” at the time the representations were made.
14
The Complaint provides some
insight into what the Agencies view as inadequate substantiation:

if there is reason to believe that a loan portfolio has unreliable data, failing to obtain
information substantiating the accuracy of the data prior to collecting;

if there is reason to believe that a consumer had a loan modification with the prior mortgage
loan servicer, continuing to seek to collect payments from the consumer under the original
15
(unmodified) loan terms; and

if a consumer disputes the validity or accuracy of the amount of the debt, failing to review
information substantiating the amount of the debt or not considering the consumer’s dispute
before continuing collection.
The Complaint also asserts that these unsubstantiated representations constitute deceptive acts or
practices in violation of the CFP Act.
16
Moreover, the Joint Action states that Green Tree is permanently
restrained and enjoined from making any representation, express or implied, regarding any Loan Data
unless Green Tree can “substantiate such a representation. . . .”
17
The representations to individual consumers in the Green Tree matter about their own loans are
significantly different from advertising claims to a broad audience that are involved in classic FTC
substantiation cases. As a result, it is by no means certain that the CFPB’s use of “substantiation”
terminology in a joint action with the FTC is laying out a new framework for targeting claims made by
financial institutions to consumers. However, a substantiation requirement effectively shifts the burden of
proof so that the agency does not have to demonstrate falsity. Instead, the financial institution or other
business must prove that it had concrete evidence that the claim was true and had the evidence in hand
at the time the claim was made. Accordingly, the Green Tree Action raises important questions for
financial institutions that in interacting with consumers—to collect debt or otherwise—rely on data
-3Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC
April 24, 2015
collected or compiled by third parties. Similar issues are presented to debt servicers and other service
providers that rely on a financial institution’s system of records in interacting with consumers. If the
doctrine is employed broadly, financial institutions may have to be more scrupulous in documenting the
basis for any claims made to consumers prior to them being made in order to have an acceptable
compliance management system.
FTC-CFPB COORDINATION
The Green Tree Action appears to be the first instance in which the FTC and the CFPB have taken joint
action since the CFPB’s formation in 2011. The Green Tree Action is part of a trend of increased
cooperation between the two agencies.
In January 2012, the FTC and the CFPB signed an MOU to coordinate efforts to protect consumers and
avoid duplication of federal law enforcement and regulatory efforts.
18
Since then, the Agencies have
coordinated efforts in connection with specific policy initiatives, but it appears that they never have
participated in a joint enforcement action. For example, the Agencies share information regarding
consumer complaints
19
and enforcement priorities,
20
comment on the other’s proposed rulemakings,
and participate in joint roundtables to discuss issues affecting consumers.
22
21
Additionally, in November
2012, the FTC and the CFPB announced a joint review of advertisements for mortgage loans,
refinancings, and reverse mortgages to uncover inaccurate or misleading promotions and misleading
statements about the costs of reverse mortgages.
23
In February 2015, pursuant to this initiative, the
CFPB announced that it was taking action against three mortgage companies that allegedly misled
consumers by implying that the U.S. government had approved of their products.
24
The FTC, although
part of the joint review of such advertisements, did not participate in the enforcement action.
It is unclear whether the Agencies’ cooperation and joint participation in the Green Tree Action is part of a
broader effort to align the enforcement activities of the two Agencies or whether their efforts were
combined in response to the specific practices by Green Tree.
Importantly, the Green Tree Action
provides additional evidence of a broader trend of regulatory enforcement authorities simultaneously
taking a bite at the same apple through cascading, and arguably additive, actions.
Clients interested in further information concerning developments in Consumer Financial Services laws
and regulations are encouraged to contact the Sullivan & Cromwell lawyers identified at the end of this
memorandum.
*
*
*
Copyright © Sullivan & Cromwell LLP 2015
-4Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC
April 24, 2015
ENDNOTES
1
Consumer Financial Protection Bureau, “CFPB and Federal Trade Commission Take Action
Against Green Tree Servicing for Mistreating Borrowers Trying to Save Their Homes” (Apr. 21,
2015),
available
at
http://www.consumerfinance.gov/newsroom/cfpb-and-federal-tradecommission-take-action-against-green-tree-servicing-for-mistreating-borrowers-trying-to-savetheir-homes/.
2
Specifically, 15 U.S.C. §§ 45(a) and 45(n)
3
Specifically, 12 U.S.C. §§ 5531(a) and (c)(1) and 12 U.S.C. § 5536(a)(1)(B).
4
15 U.S.C. § 1692 et seq.
5
15 U.S.C. § 1681 et seq.
6
12 U.S.C. § 1605.
7
Joint Action at p. 19.
8
Under FTC guidance, “substantiation” requires an advertiser to have a “reasonable basis” for an
advertising claim before such claim is disseminated. See Federal Trade Commission, “FTC
Policy Statement Regarding Advertising Substantiation” (Mar. 11, 1983), available at
https://www.ftc.gov/public-statements/1983/03/ftc-policy-statement-regarding-advertisingsubstantiation.
9
15 U.S.C. § 45(a).
10
12 U.S.C. §§ 5531 and 5536(a)(1)(B).
11
See Complaint at pp. 4 and 20-27. Available at http://www.consumerfinance.gov/newsroom/cfpband-federal-trade-commission-take-action-against-green-tree-servicing-for-mistreating-borrowerstrying-to-save-their-homes/.
12
The CFBP’s Examination Procedures manual with respect to Debt Collection indicates that when
an entity has purchased debt, examiners are tasked with reviewing information received by the
buyer of the debt from the seller to determine whether the information received is sufficient to
“substantiate representations made to consumers regarding the debt and the consumer’s liability
for the debt”. See Consumer Financial Protection Bureau, “CFPB Examination Procedures: Debt
Collection”
at
p.
8
(Oct.
24,
2012),
available
at
http://www.consumerfinance.gov/guidance/supervision/manual/. However, we are not aware of
any instances in which the CFPB took an enforcement action pursuant to this examination
procedure.
13
See Federal Trade Commission, “FTC Policy Statement Regarding Advertising Substantiation”
(Mar. 11, 1983), available at https://www.ftc.gov/public-statements/1983/03/ftc-policy-statementregarding-advertising-substantiation.
14
See Complaint at p. 20 (emphasis added).
15
This approach, while consistent with existing CFPB guidance, see, e.g., Consumer Financial
Protection Bureau, “Compliance Bulletin and Policy Guidance: Mortgage Servicing Transfers”
(Aug. 19, 2014), available at http://www.consumerfinance.gov/guidance/, and Consumer
Financial Protection Bureau, “Consumer Financial Protection Bureau Warns Mortgage Servicers
About Legal Protections for Consumers When Transferring Loans” (Feb. 11, 2013), available at
http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-remindsmortgage-servicers-of-legal-protections-for-consumers-when-transferring-loans/, may present
challenges in practice, particularly where the new servicer cannot independently confirm that the
prior servicer properly offered a modification or that the offered modification met investor criteria.
16
Specifically, 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).
-5Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC
April 24, 2015
ENDNOTES (CONTINUED)
17
See Joint Order at p. 13 (emphasis added).
18
Federal Trade Commission, “Federal Trade Commission, Consumer Financial Protection Bureau
Pledge to Work Together to Protect Consumers” (Jan. 23, 2012), available at
https://www.ftc.gov/news-events/press-releases/2012/01/federal-trade-commission-consumerfinancial-protection-bureau. The FTC and the CFPB announced in March 2015 that that they had
extended the original MOU in substantially similar form for an additional three-year period. See
https://www.ftc.gov/news-events/blogs/business-blog/2015/03/peace-loveunderstanding?utm_source=govdelivery.
19
See Consumer Financial Protection Bureau, “Consumer Response Now Sharing Complaints with
FTC
Consumer
Sentinel”
(Mar.
14,
2012),
available
at
http://www.consumerfinance.gov/blog/consumer-response-now-sharing-complaints-with-ftcconsumer-sentinel/.
20
See Federal Trade Commission Report to the Consumer Financial Protection Bureau, “Federal
Trade Commission Enforcement Activities Related to Compliance with Regulation B (Equal Credit
Opportunity), Regulation E (Electronic Fund Transfer), Regulation M (Consumer Leasing), and
Regulation Z (Truth in Lending) During 2012” (May 14, 2013), available at
https://www.ftc.gov/reports/federal-trade-commission-enforcement-activities-related-complianceregulation-b-equal-credit.
21
See, e.g., Federal Trade Commission, “FTC Staff Comment Before the CFPB on Notice of
Proposed Rulemaking: Integrated Mortgage Disclosures Under the Real Estate Settlement
Procedures Act (Reg X) and the Truth in Lending Act (Reg Z)” (Oct. 2, 2012), available at
https://www.ftc.gov/policy/policy-actions/advocacy-filings/2012/09/ftc-staff-comment-cfpb-noticeproposed-rulemaking.
22
See Consumer Financial Protection Bureau, “Save the date, Long Beach!” (Oct. 9, 2014)
(announcing a joint FTC/CFPB roundtable entitled “Debt Collection and the Latino Community),
available at http://www.consumerfinance.gov/blog/save-the-date-long-beach/.
23
Federal Trade Commission, “FTC and CFPB Announce Coordinated Effort to Protect
Consumers”
(Nov.
16,
2012),
available
at
https://www.ftc.gov/news-events/pressreleases/2012/11/ftc-cfpb-announce-coordinated-effort-protect-consumers.
24
Consumer Financial Protection Bureau, “CFPB Takes Action Against Mortgage Companies for
Misrepresenting
U.S.
Government
Affiliation”
(Feb.
12,
2015),
available
at
http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-mortgage-companies-formisrepresenting-u-s-government-affiliation/.
-6Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC
April 24, 2015
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-7Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC
April 24, 2015
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