2015 Commercial & Bankruptcy Law Seminar
Consumer Credit Protection Law Update
Featuring the Equal Credit Opportunity Act and
Regulation B and the Fair Credit Reporting Act
11:00 a.m.- 11:30 a.m.
Presented by
John Blyth
Nyemaster Goode, P.C.
700 Walnut Street, Suite 1600
Des Moines, IA 50309
Phone: 515-283-3148
Friday, May 29, 2015
Consumer Credit Protection Law Update
Featuring the Equal Credit
Opportunity Act and Regulation B
and the Fair Credit Reporting Act
2015 Commercial and Bankruptcy Law Seminar
- May 29, 2015 -
Presented By:
John W. Blyth
Nyemaster Goode, P.C.
700 Walnut Street, Suite 1600
Des Moines, IA 50309
Phone: 515.283.3148
Facsimile:515.283.3108
Email: [email protected]
Website: www.nyemaster.com
I.
Federal Consumer Finance Law Regulatory Framework
A.
B.
Dodd-Frank and the Consumer Financial Protection Act
•
Dodd-Frank: 2,319 Pages, sixteen titles
•
Title X – Consumer Financial Protection Act of 2010 (CFPA), 165
pages
•
Every sector of financial industry is touched by the CFPA to some
extent
Bureau of Consumer Financial Protection
•
The Bureau of Consumer Financial Protection (CFPB) is the big
regulatory elephant in the room. It assumed oversight of consumer
financial protection functions from the Federal Reserve Board,
Office of Comptroller of the Currency, the Federal Deposit
Insurance Company, Office of the Supervisor, National Credit
Union Administration, Federal Trade Commission and Department
of Housing and Urban Development. 1
•
The CFPB is an executive Agency housed within the Federal
Reserve System for budgetary purposes 2, but is independent of
Federal Reserve system control 3.
•
The CFPB Director is appointed by the President with advice and
consent of the Senate and serves a five year term and as head of
CFPB. 4
•
The CFPB has a broad mandate to consistently enforce Federal
consumer financial laws to ensure that all consumers have access to
markets for consumer financial products and services and that
markets for consumer financial products and services are fair,
transparent and competitive. 5
Dodd-Frank Section 1061, codified at 12 U.S.C. § 55581.
Dodd-Frank Section 1011(a), codified at 12 U.S.C. § 5491(a).
3 Dodd-Frank Section 1012(c)(2), codified at 12 U.S.C. § 5492(c)(2).
4 Dodd-Frank Section 1011(b), codified at 12 U.S.C. § 5491(b).
5 Dodd-Frank Section 1021(a), codified at 12 U.S.C. § 5511(a).
1
2
C.
D.
Financial Stability Oversight Council
•
The Financial Stability Oversight Council (FSOC) was established 6
to provide comprehensive monitoring of the stability of the nation's
financial system. 7
•
It has ten voting members consisting of the Treasury Secretary, who
also serves as chairperson, Chairman of the Board of Governors;
Comptroller of the Currency, Director of the CFPB, Chairman of the
Securities and Exchange Commission, Chairperson of the Federal
Deposit Insurance Corporation, Chairperson of the Commodity
Futures Trading Commission, Director of the Federal Housing
Finance Agency, Chairman of the National Credit Union
Administration Board, and an independent member having
insurance expertise appointed by the President, by and with the
advice and consent of the Senate. 8
•
There are five nonvoting members consisting of the Director of the
Office of Financial Research, the Director of the Federal Insurance
Office; a state insurance commissioner, a state banking supervisor,
and a state securities commissioner. 9
•
The FSOC may veto any CFPB regulation that would “put the safety
and soundness of the United States Banking System or the stability
of the financial system of the United States at risk”. 10
Enforcement Authorities
• The CFPB has primary enforcement authority over large depository
institutions (those with total assets of more than $10 billion). 11
• Existing prudential regulators have exclusive enforcement authority
over small depository institutions.12
• The CFPB and the FTC share enforcement authority over certain
non-bank institutions that provide specified services to consumers
and certain large non-bank participants defined as such by the
CFPB. 13
Dodd-Frank Section 111(a), codified at 12 U.S.C. § 5321(a).
Dodd-Frank Section 112, codified at 12 U.S.C. § 5322.
8 Dodd-Frank Section 111(b)(2), codified at 12 U.S.C. § 5321(b)(1).
9 Dodd-Frank Section 111(b)(2), codified at 12 U.S.C. § 5321(b)(2).
10 Dodd-Frank Section 1023(a), codified at 12 U.S.C. § 5513(a).
11 Dodd-Frank Section 1025(c)(1), codified at 12 U.S.C. § 5515(c)(1).
12 Dodd-Frank Section 1026(d)(1), codified at 12 U.S.C. § 5516(d)(1).
13 Dodd-Frank Section 1024(c), codified at 12 U.S.C. § 5514(c). On October 8, 2014, the CFPB proposed an
amendment to its previously adopted regulation defining larger participants for certain consumer financial products
or services by adding a new category of larger participants specifically relating to the market for auto lending. Until
6
7
2
• State attorneys generals and state presidential regulators have
limited authority to enforce Federal consumer fraud laws against
certain covered persons as do state regulators. 14
II.
CFPB Specific Rulemaking, Supervisory and Enforcement Authority
A.
Prohibited Acts
•
B.
The CFPA makes it unlawful for any covered person or service provider
to (a) offer or provide to a consumer any financial product or service
not in conformity with Federal consumer financial law or otherwise
commit any act or omission in violation of a Federal consumer
financial law; or (b) to engage in any unfair, deceptive, or abusive act or
practice. 15
Federal Consumer Financial Laws – Scope and Essential Definitions
•
The CFPA, Title X, and enumerated consumer financial laws comprise
what Dodd-Frank defines as Federal consumer financial laws. With a
few exceptions, the CFPA did not make substantive changes to the
enumerated consumer financial laws. 16 The CFPA did add important
substantive law provisions to the existing body of consumer financial
laws.
1. Enumerated Consumer Laws
The enumerated consumer laws component of the Federal
consumer financial laws is comprised of: 17
Alternative Mortgage
Transaction Parity Act of 1982
(12 U.S. C. 3801 et seq.)
Consumer Leasing Act of 1976
(15 U.S. C. 1667 et seq.)
Sections 502 through 509 of the
Gramm-Leach-Bliley Act (15
U.S.C. 6802-6809) except for
section 505 as it applies to
section 50l(b)
Home Mortgage Disclosure Act
of 1975 (12 U.S.C. 2801 et seq.)
that amendment is finalized, the FTC will have enforcement authority against those covered persons that are within
the scope of the amendment.
14 Dodd-Frank Section 1042(a), codified at 12 U.S.C. § 5551(a).
15 Dodd-Frank Section 1036(a), codified at 12 U.S.C. § 5536(a).
16 The CFPA did make an important substantive change to the TILA. It increased the threshold for exempt consumer
credit transactions from $25,000 to $50,000, effective July 21, 2011. Dodd-Frank Section 1100E(a), codified at 12
U.S.C. § 1603(3). The exemption threshold is to be adjusted annually effective January 1 of each year based on any
annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as
published by the Bureau of Labor Statistics. The threshold amount for 2015 is $54,600.
17 Dodd-Frank Section 1002(12), codified at 12 U.S.C. § 5481(12).
3
Electronic Fund Transfer Act (15
U.S. C. 1693 et seq.), except with
respect to section 920 of that Act
Equal Credit Opportunity Act (15
U.S.C. 1691 et seq.)
Fair Credit Billing Act (15 U.S.C.
1666 et seq.)
Fair Credit Reporting Act (15
U.S.C. 1681 et seq.), except with
respect to sections 615(e) and
628 of that Act (15 U.S.C.
1681m(e), 168lw)
Home Owners Protection Act of
1998 (12 U.S. C. 4901 et seq.)
Home Ownership and Equity
Protection Act of 1994 (15
U.S.C. 1601 note)
Real Estate Settlement
Procedures Act of 1974 (12
U.S.C. 2601 et seq.)
S.A.F.E. Mortgage Licensing
Act of2008 (12 U.S.C. 5101 et
seq.)
Truth in Lending Act (15 U.S.C.
1601 et seq.)
Truth in Savings Act (12 U.S.C.
4301 et seq.)
Fair Debt Collection Practices Act
(15 U.S.C. 1692 et seq.)
Section 626 of the Omnibus
Appropriations Act, 2009
Subsections (b) through (f) of
(Public Law 111-8
section 43 of the Federal Deposit
Interstate Land Sales Full
Insurance Act (12 U.S.C.
1831t(c)-(f))
Disclosure Act (15 U.S.C. 1701).
2. CFPA Substantive Law Additions
The CFPA added new categories of regulated activity – Fair Lending
and Unfair, Deceptive or Abusive Acts or Practices (UDAAP).
Fair Housing. The CFPA added a definition of “fair lending” which
means “fair, equitable, and nondiscriminatory access to credit for
consumers.” 18 The CFPB is to establish an Office of Fair Lending
and Equal Opportunity within the CFPB with powers and duties to
be delegated by the Director. 19
The CFPB is also authorized to engage in investigations and request
information relating to fair housing jointly with the Secretary of
Housing and Urban Development and the U.S. Attorney General. 20
The ECOA was amended to facilitate enforcement of fair lending
laws by requiring financial institutions to collect certain types of
Dodd-Frank Section 1002(13), codified at 12 U.S.C. § 5481(13).
Dodd-Frank Section 1013(c), codified at 12 U.S.C. § 5493(c).
20 Dodd-Frank Section 1052(a), codified at 12 U.S.C. § 5562(a).
18
19
4
information about women-owned, minority-owned and small
businesses and report the information to the CFPB. 21
Prohibition of Unfair, Deceptive or Abusive Acts or Practices. The
CFPA granted the CFPB authority to prevent covered persons from
committing unfair, deceptive or abusive acts or practices under
Federal law in connection with any consumer transaction involving
consumer financial products or services. 22
The CFPB is authorized to promulgate rules applicable to a covered
person or service provider identifying as unlawful unfair, deceptive,
or abusive acts or practices in connection with any transaction with
a consumer for a consumer financial product or service. 23
3. Consumer Financial Products and Services
A “consumer financial product or service” is any financial product
or service that is (a) offered or provided to consumers primarily for
personal family or household purposes or (b) involves extending
credit and servicing loans, providing real estate settlement services,
collecting, analyzing, maintaining or providing consumer report or
other account information, or collecting debt in connection with a
financial product or service described clause (a). 24
A “financial product or service” includes extensions of credit and
loan services, real estate settlement services and property
appraisals, taking deposits, transmitting or exchanging funds, check
cashing, guaranty or collection services, financial data processing,
and collection and provision of consumer reports and credit
histories. 25
4. Covered Persons and Service Providers
A “covered person” is (a) any person or entity that engages in
offering or providing a consumer financial product or service and
(b) any affiliate of a person or entity described in clause (a) who
acts as a service provider to such person or entity. 26
A “service provider” is any person or entity that provides a material
service to a covered person in connection with such covered
person’s offering or provision of a consumer financial product or
service. 27
Dodd-Frank Section 1071, codified at 15 U.S.C. § 1691c-2.
Dodd-Frank Section 1031(a), codified at 12 U.S.C. § 5531(a).
23 Dodd-Frank Section 1031(b), codified at 12 U.S.C. § 5531(b).
24 Dodd-Frank Section 1002(5), codified at 12 U.S.C. § 5481(5).
25 Dodd-Frank Section 1002(15), codified at 12 U.S.C. § 5481(15).
26 Dodd-Frank Section 1002(6), codified at 12 U.S.C. § 5481(6).
27 Dodd-Frank Section 1002(26), codified at 12 U.S.C. § 5481(26).
21
22
5
C.
D.
CFPB Rulemaking Authority
•
CFPB generally has exclusive rule-making authority under Federal
consumer financial laws (§1022(b)(4)).28
•
Federal Trade Commission Act is not a Federal consumer financial
law, although FTC authority to prescribe rules under consumer
financial laws is transferred to CFPB. 29
•
Fair Housing Act is not a consumer financial law and enforcement
of Fair Housing Act (most notably allegations of discrimination by
mortgage lenders) remains with HUD.
•
Amendments to ECOA and Truth-in-Lending Act (TILA) authorize
the Federal Reserve Board to make rules to carry out the ECOA
(Regulation B) 30 and TILA (Regulation Z) 31 with respect to auto
dealers excluded from CFPB authority under Dodd-Frank §
1029(a).32 CFPB has authority under its general rule-making
authority to prescribe rules to carry out ECOA (Regulation B) and
TILA (Regulation Z) with respect to auto dealers that are not
excluded from CFPB authority.
CFPB Supervisory – Examination Authority
•
CFPB has exclusive supervisory authority over insured depository
institutions and insured credit unions with total assets of more than
$10 billion and their affiliates to require reports and conduct
examinations for purposes of assessing compliance with Federal
consumer financial laws and detecting and assessing risks for
consumer financial products and services. 33
•
CFPB has supervisory authority over other insured depository
institutions and insured credit union compliance limited to
requiring reports as necessary to implement Federal consumer
financial law and to detect and assess risks to consumers and
consumer financial markets. 34
•
CFPB has supervisory authority over other covered persons offering
or providing mortgage-related products, payday and private student
Dodd-Frank Section 1022(b)(4), codified at 12 U.S.C. § 5512(b).
Dodd-Frank Section 1061(b)(5)(B), codified at 12 U.S.C. § 5581(b)(5)(B).
30 Dodd-Frank Section 1085(3)(f), codified at 15 U.S.C. § 1691b(f).
31 Dodd-Frank Section 1100(A)(7), codified at 12 U.S.C. § 1604(i).
32 Dodd-Frank Section 1029(a), codified at 12 U.S.C. § 5519(a).
33 Dodd-Frank Section 1025(b)(1), codified at 12 U.S.C. § 5515(b)(1).
34 Dodd-Frank Section 1026(b), codified at 12 U.S.C. § 5516(b).
28
29
6
loans and larger participants in markets for other consumer
financial products or services as defined by CFPB rule. 35
E.
CFPB Enforcement Authority
•
The CFPB has the authority to commence a civil action against any
person who violated a Federal consumer financial law to impose a
civil penalty or seek legal and equitable relief, including a
permanent or temporary injunction. 36
•
Legal remedies available in a CFPB proceeding include rescission or
reformation of contracts, refund of moneys or return of real
property, restitution, disgorgement or compensation for unjust
enrichment, payment of damages or other monetary relief, public
notification regarding the violation, including the costs of
notification, and limits on the activities or functions of the person. 37
Civil penalties are to be imposed for each violation as follows: (a) up
to $5,000 for each day during which the violation continued, (b) up
to $25,000 per day for each reckless violation and (c) up to
$1,000,000 per day for each knowing violation. 38 No exemplary or
punitive damages are authorized, 39 but the CFPB may recover its
costs if it is the prevailing party. 40
•
The CFPB is not authorized to bring criminal proceedings but if the
CFPB obtains evidence that any person has engaged in conduct that
may constitute a violation of federal criminal law, the CFPB must
refer the case to the US Attorney General. 41
•
The CFPA is silent as to private rights of action. However, an
earlier version of the legislation passed by the House included a
provision stating that the CFPA created no private cause of action
which was omitted from the CFPA. Violations of the UDAAP
prohibitions under the CFPA could be grounds for private causes of
action under state unfair and deceptive acts.
•
CFPB has primary enforcement authority over large insured
depository institutions, 42 but prudential regulator may recommend
Dodd-Frank Section 1024(a)(1), codified at 12 U.S.C. § 5514(a)(1). This authority is limited to commencing actions
against persons over whom the CFPB otherwise has enforcement authority.
36 Dodd-Frank Section 1054(a), codified at 12 U.S.C. § 5564(a).
37 Dodd-Frank Section 1055(a)(2), codified at 12 U.S.C. § 5565(b).
38 Dodd-Frank Section 1055(c)(2), codified at 12 U.S.C. § 5565(c)(2).
39 Dodd-Frank Section 1055(a)(3), codified at 12 U.S.C. § 5565(a)(3).
40 Dodd-Frank Section 1055(b), codified at 12 U.S.C. § 5565(b).
41 Dodd-Frank Section 1056, codified at 12 U.S.C. § 5566.
42 Dodd-Frank Section 1025(c)(1), codified at 12 U.S.C. § 5515(c)(1).
35
7
enforcement action 43 and may initiate enforcement action if CFPB
does not initiate action within 120 days of the referral. 44
•
Prudential regulators have exclusive authority to bring enforcement
proceedings against small insured depository institutions. 45 The
CFPB is required to notify the prudential regulator if the CFPB has
reason to believe a small insured depository institution has engaged
in a material violation of a Federal consumer financial law. 46
•
CFPB has exclusive authority to bring enforcement proceedings
against non-depository covered persons. 47
•
State attorneys general may bring civil actions to enforce the CFPA
and implementing regulations against covered persons 48 other than
national banks and federal thrifts, 49 but may bring a civil action
against national banks and federal thrifts to enforce a regulation
under the CFPA only (and not a statutory violation). 50 The state
attorney general must first notify the CFPB and the prudential
regulator before commencing any action against a covered person
to enforce any provision of the CFPB in implementing regulation. 51
•
State regulators may bring civil action to enforce CFPA and
implementing regulations against a covered person that is statechartered, incorporated, licensed or otherwise authorized to do
business under state law. 52 The state regulator must first notify the
CFPB and prudential regulator before commencing any action
against a covered person to enforce any provision of the CFPA or
any implementation regulation. 53
43
Dodd-Frank Section 1025(c)(2), codified at 12 U.S.C. § 5515(c)(2).
Dodd-Frank Section 1025(c)(3), codified at 12 U.S.C. § 5515(c)(3).
45 Dodd-Frank Section 1026(d)(1), codified at 12 U.S.C. § 5516(d)(1).
46 Dodd-Frank Section 1026(d)(2), codified at 12 U.S.C. § 5516(d)(2).
47 Dodd-Frank Section 1024(c), codified at 12 U.S.C. § 5514(c).
48 Dodd-Frank Section 1042(a)(1), codified at 12 U.S.C. § 5552(a)(1).
49 Dodd-Frank Section 1042(a)(2), codified at 12 U.S.C. § 5552(a)(2).
50 Dodd-Frank Section 1042(a)(2)(B), codified at 12 U.S.C. § 5552(a)(2)(B).
51 Dodd-Frank Section 1042(b)(1)(A), codified at 12 U.S.C. § 5552(b)(1)(A).
52
Dodd-Frank Section 1042(a)(2), codified at 12 U.S.C. § 5552(a)(2).
53 Dodd-Frank Section 1042(b)(1)(A), codified at 12 U.S.C. § 5552(b)(1)(A).
44
8
III.
Equal Credit Opportunity Act (ECOA) and Regulation B and Fair
Credit Reporting Act (FCRA)
A.
Spousal Guarantor as Applicant under the ECOA and Regulation B
1. Statutory and Regulation B Definition and Prohibitions
Title VII - Equal Credit Opportunity Act
§701. Prohibited discrimination; reasons for adverse action
(a) It shall be unlawful for any creditor to discriminate against any
applicant, with respect to any aspect of a credit transaction – (1) on
the basis of race, color, religion, national origin, sex or marital
status, or age (provided the applicant has the capacity to contract)
(Emphasis Added)
§702. Definitions
(b) The term “applicant” means any person who applies to a
creditor directly for an extension, renewal, or continuation of credit,
or applies to a creditor indirectly by use of an existing credit plan
for an amount exceeding a previously established credit limit.
(d) The term “credit” means the right granted by a creditor to a
debtor to defer payment of debt or to incur debts and defer its
payment or to purchase property or services and defer payment
therefor.
Equal Credit Opportunity Act (Regulation B)
§202.2 Definitions
(e) Applicant means any person who requests or who has received
an extension of credit from a creditor, and includes any person who
is or may become contractually liable regarding an extension of
credit. For purposes of §202.7(d), the term includes guarantors,
sureties, endorsers, and similar parties. (Emphasis Added)
§202.7 Rules concerning extensions of credit
(d) Signature of spouse or other person – (1) Rule for qualified
applicant. Except as provided in this paragraph, a creditor shall
not require the signature of an applicant’s spouse or other person,
other than a joint applicant, on any credit instrument if the
applicant qualifies under the creditor’s standards of
creditworthiness for the amount and terms of the credit requested.
A creditor shall not deem the submission of a joint financial
9
statement or other evidence of jointly held assets as an application
for joint credit.
2. Split Between 9th Circuit and 6th Circuit in Application of Chevron
U.S.A. v. National Resources Defense Council Framework
•
Hawkins v. Community Bank of Raymore, 761 F. 3d 937 (8th Circuit
2014), cert granted March 2, 2015 Held: Spousal guarantor is not
applicants under ECOA.
In applying first step of Chevron framework, Court concluded that
the ECOA “clearly” provides that a person does not qualify as an
applicant solely by virtue of executing a guaranty to support
another person’s debt.
Because text of ECOA is unambiguous, Court did not defer to
Regulation B interpretation.
•
RL BB Acquisition, LLC v. Bridgemill Commons Development
Group, LLC, 754 F. 3d 380 (6th Circuit 2014). Held: Spousal
Guarantor can be an applicant under ECOA.
In applying Chevron first step, Court concluded that “applicant” is
ambiguous because it could be read to include third parties that did
not initiate an application for credit.
Under Chevron Step two, Court concluded Regulation B is a
permissible interpretation entitled to deference.
•
B.
Hawkins v. Community Bank of Raymore, cert granted March 2,
2015 to decide whether the ECOA applies to loan guarantors.
FCRA and Employers
1. FCRA Provision
•
The Fair Credit Reporting Act requirements extend beyond credit
reporting agencies and creditors and also covers employers that use
a consumer report for employment decisions. It imposes
requirements that the user of the report must satisfy before
requesting a consumer report for the consumer (the employee,
prospective or existing), before taking adverse action based on the
report and after taking adverse action based on the report.
•
The FCRA provides private rights of action for the consumer to
enforce negligent violations (FCRA §617, 15USC §1681o) and willful
violations (FCRA §616, 15USC §1681n) of the FCRA requirement by
the employer. The employer may be liable for actual damages
10
sustained by the consumer or statutory damages of not less than
$100 nor more than $1,000 for willful violations, punitive damages
and reasonable attorneys’ fees and costs. Employer liability for
negligent violations is limited to actual damages and reasonable
attorneys’ fees and costs. Plaintiff class actions almost always allege
willful violations with an eye on the statutory damages.
2. Supreme Court Grants Certiorari in Spokeo, Inc. v. Robins, No. 13-1339
(April 27, 2015)
•
IV.
Recent Developments
A.
54
55
The Supreme Court granted certiorari in Spokeo on the question
whether class action plaintiffs can sue for statutory damages when
they can show no actual injury or harm, but only statutory
noncompliance. A decision requiring that plaintiffs must show
actual injury/damages, not just a statutory violation, would likely
have a very chilling effect on class action lawsuits involving
workplace FCRA violations. Statutory damages are not provided for
negligent violations.
Unfair, Deceptive or Abusive Acts or Practices
•
Dodd-Frank added new substantive provisions that make it
unlawful for any provider of consumer financial products or
services or a service provider to engage in any unfair, deceptive or
abusive act or practice (“UDAAP”). 54 The CFPB has rule-making
authority and, with respect to entities within its jurisdiction,
enforcement authority to prevent UDAAP in connection with any
transaction with a consumer for a consumer financial product or
service, or the offering of a consumer financial product or service. 55
•
The Dodd-Frank UDAAP provision is broad and vague, but the
CFPB has not yet exercised its rule-making authority to define
prohibited UDAAP. Covered persons must instead look to recent
CFPB enforcement actions for guidance – UDAAP development on
a case-by-case basis. Notably, many UDAAP enforcement actions
have also involved violations of specific Federal consumer financial
laws. Some UDAAP enforcement actions use alleged UDAAP
violations to reach covered persons to whom Federal consumer
financial laws might not apply directly.
•
The subject matter of some representative UDAAP enforcement
actions and CFPB supervisory observations are highlighted below.
Dodd-Frank Section 1031(a), codified at 12 U.S.C. § 5531(a).
Dodd-Frank Section 1031(b), codified at 12 U.S.C. § 5531(b).
11
 Debt Collection/Settlement/Relief
•
Deceptive practices - attorneys included misrepresentations by
attorneys in collection lawsuits.56 The CFPB filed a complaint
against the debt collection law firm Frederick J. Hanna &
Associates, P.C. and its three principal partners. The complaint
alleges that the firm operated “less like a law firm than a
factory” in filing collection lawsuits against hundreds of
thousands of Georgia consumers to collect debts that the
consumers allegedly owed to others. The attorneys allegedly
knew or should have known that many of the affidavits
obtained for the collection lawsuits were executed by persons
who lacked personal knowledge of the facts. The attorneys also
allegedly obtained affidavits received from their debt collection
clients without first determining whether any underlying
documentation for the debt to be collected was available, nor
did they review the contracts governing the sale of accounts to
determine whether those contracts disclaimed any warranties
regarding the accuracy or validity of the debts. The attorneys
allegedly represented in their collection lawsuits that attorneys
were meaningfully involved in the preparation and filing of the
lawsuits when in fact the attorneys lacked meaningful
involvement. engaging in deceptive acts and practices in the
course of its debt collection activities. The attorneys’ lack of
meaningful attorney involvement in preparing and filing the
collection lawsuits and their use of affidavits allegedly
constituted violations of the Fair Debt Collection Practices Act,
the CFPB alleged the following deceptive acts in violation of the
Dodd-Frank Act. These Fair Debt Collection Practices Act
allegedly constitute deceptive acts and practices in violation of
sections 1031(a) of the CFPA (12 U.S.C. § 5531(a)) and
1036(a)(1)(B) of the CFPA (12 U.S.C. § 5536(a)(1)(B)).
 Mortgage Servicing/Origination/Relief
 Auto Leasing and Loans/Ancillary Products/Debt Collection
 Credit Card Add-Ons
 Retail Installment Credit/Debt Collection
 Payday Loans/Debt Collection
Complaint, Consumer Financial Protection Bureau v. Frederick J. Hanna & Associates, P.C., Case No. 1:14-cv02211-AT-WEJ (N.D. GA, July 14, 2014), available at
http://files.consumerfinance.gov/f/201407_cfpb_complaint_hanna.pdf
56
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B.
RESPA and TILA Integrated Disclosure
1. Background
•
Dodd-Frank directed the CFPB to integrate the mortgage loan
disclosures under TILA and RESPA Sections 4 and 5 and propose
for public comment rules and model disclosures that integrate these
disclosures by July 21, 2012. The CFPB issued proposed rules and
forms on July 9, 2012. The CFPB adopted a final rule on December
21, 2013 with new, integrated disclosures (the TILA-RESPA rule). 57
•
The new TILA-RESPA rule is effective August 1, 2015.
2. Highlights
•
The new rule generally applies to most closed-end consumer
mortgage loans, but does not apply to home equity lines of credit,
reverse mortgages, mortgage loans secured by a mobile home or
unattached dwelling, loans made by a lender making fewer than six
mortgages a year and certain no-interest second mortgage loans
made for the purpose of down payment assistance, property
rehabilitation, energy efficiency or foreclosure avoidance.
•
Current disclosure requirements under TILA and RESPA require
lenders make two sets of disclosures, one at the time of application
using two different forms, the initial TILA statement and the
RESPA Good Faith Estimate, and another at or near closing also
using two different forms, a final TILA statement and the RESPA
HUD settlement statement. The new Loan Estimate form replaces
the initial TILA statement and the RESPA Good Faith Estimate
forms and incorporates additional disclosures required under
Dodd-Frank. Similarly, the new Closing Disclosure replaces the
final TILA statement and the RESPA HUD settlement statements
and incorporates additional disclosures required under DoddFrank.
•
The Loan Estimate must reflect a good faith estimate of the closing
costs. For this purpose, an estimate is in good faith if the actual
closing costs paid by the consumer does not exceed the estimate,
subject to certain permitted tolerances. The Loan Estimate form
must be given within three days after the loan application is made.
•
The Closing Disclosure must be given at least three days before
closing.
57 Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In
Lending Act (Regulation Z) (78 FR 7973, Dec. 31, 2013).
13
3. CFPB Compliance Guide
•
C.
The CFPB has published a TILA-RESPA Integrated Disclosure rule
– Small entity compliance guide (March 2015)
(http://www.consumerfinance.gov/regulatoryimplementation/tila-respa/) that provides a helpful summary of the
new TILA-RESPA rule. Reference is made to the guide for a more
detailed discussion of the new TILA-RESPA rule and the new
disclosure forms.
Ability-to-Repay and Regulation Z: Installment Sale of Personal Residence
1. Dodd-Frank and Regulation Z
•
Dodd-Frank amended the Truth-in-Lending Act to prohibit
creditors from making residential mortgage loans unless the
creditor makes a reasonable and good faith determination, based on
verified and documented information, that the consumer will have
a reasonable ability to repay the loan according to its terms. 58
Dodd-Frank also amended the Truth-in-Lending Act to establish a
presumption of compliance with the ability to repay requirement
for a category of mortgage defined as a “qualified mortgage”. 59
•
The CFPB amended Regulation Z to implement Dodd-Frank
Ability-to-Repay effective January 10, 2014. 60
2. Seller Financiers
•
D.
There has been some suggestion that a seller who finances a buyer’s
purchase of a personal residence through a mortgage loan or
installment sale would be subject to the TILA and Regulation Z
Ability-to-Repay determination requirement. However, Regulation
Z defines a “creditor” as a person who regularly extends consumer
credit and for this purpose a person regularly extends consumer
credit only if the person extended credit more than five times
during the preceding calendar year or current calendar year. 61 A
seller should not be a creditor in most private contract home sales
and should not be subject to the Ability-to-Pay requirement.
Auto Finance – Auto Dealer Coverage under Federal Consumer Financial
Laws
1. Direct and Indirect Auto Lending
Dodd-Frank Section 1411(a)(2), codified at 15 U.S.C. § 1639c(a).
Dodd-Frank Section 1412(b), codified at 12 U.S.C. § 1639c(b).
60 Ability-to-Repay and Qualified Mortgage Standards Under Truth-in-Lending Act (Regulation Z) 78 Fed. Reg. 6408
(January 30, 2013); 12 C.F.R. § 1026.43.
61 See 12 C.F.R. § 1026.2(a)(17)(i) and (iv).
58
59
14
•
The CFPA and enumerated consumer laws blanket auto dealers,
direct auto lenders and indirect auto lenders that purchase retail
credit and retail leases originated by auto dealers with a kind of
crazy quilt of rulemaking, supervisory and enforcement authorities
spread among the CFPB and other federal agencies.
•
There are two common models of auto finance, indirect lending and
direct lending. With indirect lending, the dealer typically collects
basic information regarding the applicant (by completing a credit
application) and forwards that information to prospective indirect
auto lenders. The auto dealer originates a retail installment
contract or retail lease contract with the consumer/applicant and
assigns the contract to the indirect lender who has agreed to accept
the assignment.
•
With direct lending, the dealer may or may not collect information
about the consumer for the direct lender. Alternatively, the
consumer arranges financing directly with the lender. In direct
lending, the lender and consumer enter into a two-party finance
contract. The dealer is not a party to the finance contract, so there
is no assignment to the lender.
2. Auto Dealer Regulation
•
Section 1029(a) Exclusion from CFPB Authority. Auto dealers that
originate retail installment contracts or retail lease contracts with
consumers and routinely assign them to indirect lenders that are
not owned or controlled by the dealer are excluded from all CFPB
rulemaking, supervisory, enforcement and other authority. 62
•
Section 1029(b) Exception to Section 1029(a) Exclusion. The auto
dealer exclusion from CFPB authority does not apply to auto
dealers that originate retail installment contracts or retail lease
contracts with consumers and either retain the contract or assign
them contract to an indirect lender controlled by the dealer, provide
consumers with real property mortgages or offer or provide
consumers with a consumer financial product not related to the
sale, financing, leasing or servicing of motor vehicles. 63 These auto
dealers may be subject to CFPB rulemaking, supervisory,
enforcement and other authority as otherwise applicable to covered
persons.
62 Dodd-Frank
63
Section 1029(a), codified at 12 U.S.C.§ 5519(a).
Dodd-Frank Section 1029(b), codified at 12 U.S.C. § 5519(b).
15
3. TILA and ECOA Coverage of Auto Dealers
•
Any auto dealer extending consumer credit more than 25 times
during any calendar year that either carries a finance charge or that
is repayable in more than four installments with or without a
finance charge is a creditor for purposes of the Truth-in-Lending
Act and its implementing regulation, Regulation Z, and is subject to
the requirements of both laws. 64
•
An auto dealer that regularly extends, renews, or continues credit or
regularly arranges for the extension, renewal, or continuation of
credit is a creditor under the Equal Credit Opportunity Act. 65 An
auto dealer will be a creditor under Regulation B if the dealer, in the
ordinary course of business, regularly participates in a credit
decision, including setting the terms of the credit, refers applicants
or prospective applicants to creditors or selects or offers to select
creditors to whom requests for credit may be made. 66
4. Regulation B and Regulation Z Rulemaking and Enforcement
Authority
•
CFPB Rulemaking and Enforcement Authority. Auto dealers not
excluded from CFPB authority are subject to applicable rules
promulgated by the CFPB implementing Federal consumer
financial laws. 67 Auto dealers not excluded from CFPB authority
are subject to CFPB supervision and enforcement authority if the
dealer meets the CFPB’s definition of larger participant under its
rule yet to be finalized. 68
•
FTC Enforcement of the ECOA and Regulation B and TILA and
Regulation Z. The FTC has authority to enforce the ECOA and
regulations issued thereunder and the TILA and regulations issued
thereunder against persons under its jurisdiction to which Congress
has not assigned enforcement to some other government agency. 69
The FTC has enforcement authority against auto dealers excluded
from CFPB authority.
15 U.S.C. § 1602(g); 12 C.F.R. § 226.2(a)(17)(i) and (v), with respect to auto dealers excluded from CFPB authority
and 12 C.F.R. § 1026.2(a)(17)(i) and (v), with respect to auto dealers that are not excluded from CFPB authority.
65 15 U.S.C. § 1691a(d).
66 12 C.F.R. 202.2(l), with respect to auto dealers excluded from CFPB authority, and 12 C.F.R. 1002.2(l), with respect
to auto dealers not excluded from CFPB authority.
67 Dodd-Frank Section 1029(b), codified at 12 U.S.C. 5519(b).
68 Dodd-Frank Section 1024(b), codified at 12 U.S.C. § 5514(b) with respect to CFPB Supervision, and Dodd-Frank
Section 1024(c), codified at 12 U.S.C. § 5514(c), with respect to CFPB enforcement; 12 C.F.R. 1090.100. The CFPB has
proposed an amendment that would define larger participants of the market for automobile financing. See Defining
Larger Participants of the Automobile Financing Market and Defining Certain Automobile Leasing Activity as a
Financial Product or Service, 79 Fed. Reg. 60762 (Oct. 8, 2014) (to be codified at 12 C.F.R. Parts 1001 and 1090).
69 Dodd-Frank Section 1085(4)(B), codified at 15 U.S.C. § 1691c(c) as to ECOA, and Dodd Frank Section 1100A(8)(B),
codified at 15 U.S.C. § 1607(c) with respect to TILA.
64
16
•
E.
Federal Reserve Board Limited Rulemaking Authority. The Federal
Reserve Board is authorized to prescribe regulations under the
ECOA (Regulation B) and the TILA (Regulation Z) with respect to
auto dealers excluded from CFPB authority. 70
Evidence of Discrimination and Violations of ECOA Fair Lending
Requirements
1. General Fair Lending Prohibitions
•
The fair lending requirements of the ECOA make it illegal for a
creditor to discriminate in any credit transaction against any
applicant because of race, color, religion, national origin, sex,
marital status, age (if the applicant is old enough to enter into a
contract), receipt of income from any public assistance program; or
the exercise in good faith of a right under the Consumer Credit
Protection Act. 71
•
On December 21, 2011, the CFPB adopted Regulation B
implementing the ECOA. 72 In so doing, the CFPB reaffirmed the
disparate treatment and disparate impact theories of liability for
discrimination in connection with the extension of credit prohibited
by the ECOA originally adopted by the Federal Reserve Board under
its prior authority to implement the ECOA. 73 The CFPB
subsequently confirmed its intention to adopt all three methods of
proving lending discrimination under the ECOA – overt
discrimination, disparate treatment and disparate impact - set out
in the Interagency Task Force on Fair Lending, Policy Statement on
Discrimination in Lending, 59 Fed. Reg. 18,266 (Apr. 15, 1994). 74
Under the Policy Statement as discussed in CFPB Bulletin 2012-04:
 Overt discrimination occurs when the lender openly
discriminates on a prohibited basis or even when the lender
expresses - but does not act on - a discriminatory basis.
 Disparate treatment occurs when a lender treats a credit
applicant differently based on one of the prohibited bases. No
showing that the treatment was motivated by prejudice or a
conscious intention to discriminate against a person beyond the
difference in treatment itself is required. It is considered by
courts to be intentional discrimination because no credible,
Dodd-Frank Section 1085(3)(f), codified at 15 U.S.C. 1691b(f), with respect to Regulation B, and Dodd-Frank
Section 1100A(7), codified at 15 U.S.C. § 1604(i), with respect to Regulation Z.
71 15 U.S.C. § 1691(a)(1).
72 Adopted as interim final rule codified 12 C.F.R. Part 1002. 76 Fed. Reg. 79942, December 21, 2011.
73 See 12 C.F.R. 202.4(a) and 202.6(a).
74 CFPB Bulletin 2012-04 (Fair Lending), Lending Discrimination, April 18, 2013.
70
17
nondiscriminatory reason explains the difference in treatment
on a prohibited basis.
 Disparate impact occurs when a lender applies a policy or
practice equally to credit applicants, but the policy or practice
has a disproportionate adverse impact on applicants in a
protected class. Policies and practices that are neutral on their
face and that are applied equally may still, on a prohibited and
unlawful basis, disproportionately and adversely affect a
person's access to credit. It not necessary to show that the
lender intended to discriminate to establish unlawful disparate
impact in violation of the ECOA.
2. Class Actions Based on Disparate Impact After Wal-Mart Stores, Inc. v.
Dukes.
•
The Supreme Court in Wal-Mart Stores, Inc. v. Dukes 75 denied class
action status in a lawsuit alleging disparate impact affecting female
employees in violation of Title VII of the 1964 Civil Rights Act. The
basis for class certification was statistical evidence showing pay and
promotion disparities and a sociologist’s “social framework
analysis” that purported to show that Wal-Mart was vulnerable to
gender discrimination leading to an unlawful disparate impact on
female employees. The Court ruled that the mere showing that
Wal-Mart’s policy giving local supervisors discretion over
employment matters produced an overall sex based disparity did
not establish that the employer operated under a general policy of
discrimination as required to satisfy the commonality requirement
and permit class certification.
•
Although Wal-Mart involved a class action alleging unlawful
discriminatory employment practices in violations of Article VII, it
was based on the disparate impact theory that has served as the
basis for fair lending class actions alleging violations of the ECOA.
Wal-Mart has had a significant impact on fair lending class actions
that allege disparate impact based on statistical disparities in loan
pricing and fees under a lender’s discretionary pricing policy.
Based on Wal-Mart, courts are no longer allowing plaintiffs to show
disparate impact and discretionary pricing alone to permit class
certification. 76 Instead, courts are uniformly requiring plaintiffs to
satisfy the commonality requirement by showing a common
Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).
See In re Countrywide Financial Mortgage Lending Practices Litigation, 708 F.3d 704 (6th Circuit 2013), Barrett v.
H&R Block, Inc., 1st Circuit, No. 12-8033, February 7, 2013, denying petition to review District Court decertification of
a class in an action brought pursuant to the ECOA and FHA, and Rodriguez v. National City Bank, 726 F.3d 372 (3rd
Circuit 2013). Each involved unsuccessful appeals of denials of class certification in fair lending class actions
following Wal-Mart.
75
76
18
practice of exercising discretion that has a disparate impact before
class certification will be permitted.
3. Enforcement Actions
•
Commonality is, of course, not an issue in enforcement actions.
However, the disparate impact theory of liability for discrimination
in violation of the ECOA is an issue. The CFPB and other agencies
have applied the disparate impact theory long recognized as a valid
theory in Title VII employment cases to fair lending actions under
the FHA and ECOA against banks, mortgage companies, finance
companies and indirect auto lenders. CFPB Bulletin 2013-02
provides a prime example of how one enforcement agency, the
CFPB, is extending the reach of the disparate impact theory. 77 The
Bulletin provides guidance to indirect auto lenders whose policies
allow a dealer to “markup” the actual interest rate to the consumer
above the lender’s “buy rate”. The Bulletin indicates the CFPB’s
intention to hold indirect auto lenders liable under the ECOA if
their dealer markup and compensation policies result in pricing
disparities on a prohibited basis.
•
The FHA and ECOA fair lending statutory provisions are very
similar, but both have important omissions that differentiate each
from the Title VII text on which the disparate impact theory is
based. 78 All federal circuit courts recognize the disparate impact
theory under the FHA, most recently reconfirmed by the Fifth
Circuit in The Inclusive Communities Project, Inc. v. Texas
Department of Housing and Community Affairs, 747 F.3d 275 (5th
Cir. 2014). The U.S. Supreme Court granted certiorari in Texas
Department of Housing and Community Affairs v. The Inclusive
Communities Project, Inc., 135 S. Ct. 46, No. 13-1371,on October 2,
2014 to determine whether the FHA permits disparate impact
claims. A decision is expected in June.
CFPB Bulletin (March 21, 2013).
The US Supreme Court first adopted the disparate impact theory of liability as a basis for liability for discrimination
in Griggs v. Duke Power Co., 401 U.S. 424, 91 S. Ct. 849 (1771), an employment case alleging discrimination in
violation of Title VII of the Civil Rights Act of 1964. The Court’s subsequent decision in Smith v. City of Jackson, 544
U.S. 228, 125 S.Ct. 279 (2005) made an important clarification that Title VII contained two different statutory
provisions prohibiting discrimination. The Griggs decision adopting the disparate impact theory was based on a
statutory provision (Section 703(a)(2) of Title VII) that prohibited the employer from taking action that negatively
affects a person’s employment on a prohibited basis and that intent to discriminate was not required under this
particular statutory provision. The Supreme Court in City of Jackson concluded that a provision of the ADEA similar
to Section 703(a)(2) of Title VII (Section 4(a)(2) of the ADEA prohibiting discrimination on the basis of age that
adversely affected the person’s employment) likewise permitted disparate impact claims. However, neither the FHA
nor the ECOA contains a statutory provision similar to Section 703(a) of Title VII or Section 4(a)(2) of the ADEA.
77
78
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