FCC Issues 138-Page Order Addressing TCPA Questions

On July 10, 2015, the Federal Communications Commission issued its highly anticipated “TCPA Omnibus Declaratory Ruling and Order” addressing a number of petitions and comments concerning interpretation of the Telephone Consumer Protection Act of 1991. The Order addresses a wide variety of TCPA topics, including the meaning of certain statutory terms and the application of provisions to today’s technology.  Among other important topics, the Order:

  • Defines (or “reaffirms,” according to the Commission) the FCC’s autodialer definition.
  • Discusses third-party liability for TCPA violations.
  • Tries to clear up ambiguity regarding consent and revocation of consent.
  • Addresses re-assigned cell phone numbers, including the creation of a one-call safe harbor for calls to reassigned numbers under certain situations.
  • Confirms that a one-time text message sent immediately after a consumer’s request for the text does not violate the TCPA or FCC rules or regulations.
  • Exempts certain health-care related messages.
  • Addresses call-blocking technology.

Petitions challenging the FCC’s TCPA Order were filed within days of its July 10 issuance in at least two courts of appeal.  See, ACA Int’l v. Fed. Comm’ns Comm’n, No. 15-1211 (D.C. Cir. filed July 10, 2015) (petition for review), consolidated with Sirius XM Radio, Inc. v. Fed. Comm’ns Comm’n, No. 15-1218 (D.C. Cir. filed July 14, 2015) (petition for review); Prof’l Ass’n for Customer Engagement, Inc. v. Fed. Comm’ns Comm’n, No. 15-2489 (7th Cir. filed July 14, 2015) (petition for review).  Among other arguments, these petitions claim that the Order is arbitrary and capricious, constitutes an abuse of discretion, and exceeds the FCC’s statutory authority.

The TCPA includes statutory penalties of up to $1500 per violation, without any proof of actual damage.  According to a WebRecon report on litigation trends, TCPA lawsuits increased 30 percent from September 2013 to September 2014, from 1,338 to 1,908, including an increase in TCPA class action lawsuits.

Read more:  Perkins Coie Update:  “The July 2015 TCPA Omnibus Declaratory Ruling and Order:  The Good, the Bad, and the Ugly

Supreme Court Decides “Underwater” Debtors Cannot Lien Strip Second Mortgages in Bankruptcy

On June 1, 2015, the U.S. Supreme Court ruled in Bank of America v. Caulkett that borrowers cannot void second mortgages under Chapter 7  bankruptcy protection if the secured property’s value falls below the amount owed on the first mortgage.  In a unanimous decision, the Court held that bankruptcy courts may not use Section 506(d) of the Bankruptcy Code to “strip off” junior liens on property if the value of the property used as collateral is less than the amount the debtor owes to the senior lien holder — that is, when the loan is “underwater.”   The Court’s decision affects the right of junior lienholders to collect on loans in the event of a debtor’s declaration of bankruptcy and the treatment of previously secured, but subordinate, debt in bankruptcy proceedings.

Read more:  The Wall Street Journal: High Court: Underwater Homeowners Can’t Void Second Mortgage in Bankruptcy

New York Times:  Supreme Court Ruling Little Help to Struggling Homeowners


CFPB Issues Third Fair Lending Report to Congress

On April 28, 2015, the Consumer Financial Protection Bureau (“CFPB”) released its third Fair Lending Report to Congress.  The report summarizes the CFPB’s fair lending activities during the 2014 calendar year.  The report largely focuses on the efforts of the CFPB’s Office of Fair Lending, which according to Director Cordray’s comments in the report “provides oversight and enforcement of Federal fair lending laws; coordinates the Bureau’s fair lending efforts with Federal agencies and State regulators; works with private industry, fair lending, civil rights, consumer and community advocates to promote fair lending compliance and education; and provides annual reports on these efforts to fulfill its fair lending mandate.”

The report includes a focus on two markets:

Mortgage Lending: The report makes clear that during 2014, mortgage lending was a “key priority” for the Office of Fair Lending in  both enforcement and supervision.  The integrity of the data disclosed under the Home Mortgage Disclosure Act (HMDA), and potential fair lending risks in connection with redlining, underwriting, and pricing are identified as areas of focus.

Auto Lending: The report identifies the indirect auto lending industry as another critical area of focus during 2014.  The report notes that the CFPB considered the use of discretionary pricing policies which it contends has resulted in discrimination against certain minorities in violation of the Equal Credit Opportunity Act (ECOA).  It noted that during the past two years, several supervisory reviews allegedly revealed discretionary dealer markup and compensation policies that may discriminate against certain minorities.

The report also notes fair lending activities in the credit card market, including a CFPB enforcement action against a company that allegedly failured to provide certain consumers with debt relief offers because of national origin.

According to the report, the CFPB’s fair lending enforcement activities during 2014 resulted in financial institutions paying approximately $224 million in monetary relief to over 300,000 consumers.


SEC Brings First Enforcement Action Against Credit Ratings Agency

On January 21, the Securities and Exchange Commission (SEC) announced a settlement with a credit rating agency regarding its rating of certain commercial mortgage-backed securities (CMBS). According to the announcement, the ratings agency agreed to pay the SEC more than $58 million to settlement the SEC’s charges, plus an additional $19 million to settle parallel cases announced by the New York Attorney General ($12 million) and the Massachusetts Attorney General’s office ($7 million).  The SEC alleged that the ratings agency (i) misrepresented its conduit fusion CMBS ratings methodology; (ii) published a “false and misleading article purporting to show that its new credit enhancement levels could withstand Great Depression-era levels of economic stress;” and (iii) failed to maintain and enforce internal controls regarding changes to its surveillance criteria. In a separate administrative order, the SEC instituted a litigated administrative proceeding against the former head of the agency’s CMBS Group for “fraudulently misreprent[ing] the manner in which the [ratings agency] calculated a critical aspect of certain CMBS ratings in 2011.”

Read more:  SEC CMBS Order #1#2 and #3;  USA Today (SEC charges ratings agency over ratings); Forbes.com

CFPB Proposes Expanded Foreclosure Protections, New Servicer Obligations

On November 20, 2014, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule expanding protections offered to borrowers who have defaulted on residential mortgages.  The proposed rule, if adopted following a 90 day comment period, would add to the agency’s mortgage servicing rules that became effective earlier this year.  A central part of the proposal would require that mortgage servicers provide additional foreclosure protections to borrowers who have already taken advantage of loss mitigation opportunities and subsequently defaulted.  The rule would also add additional servicing transfer requirements on loan servicers, and add protections for surviving family members and others who inherit or receive property.  The CFPB’s press release summarized the new servicer obligations.

  • Require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan: Currently, a mortgage servicer must give the borrower certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. Under the proposed rule, servicers would have to give those protections again for borrowers who have brought their loans current at any time since the last loss mitigation application and again defaulted.
  • Expand consumer protections to surviving family members and other homeowners: If a borrower dies, CFPB rules currently require that servicers promptly identify and communicate with family members, heirs, or other parties, known as “successors in interest,” who have a legal interest in the home. The proposal would expand the circumstances in which consumers would be considered successors under the rules and the protections offered to such successors.
  • Require servicers to notify borrowers when loss mitigation applications are complete: The proposal would require servicers to notify borrowers promptly that the application is complete.
  • Loss mitigation obligations of new servicer during servicing transfers:  The proposal provides that generally a transferee servicer must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer. If the borrower’s application was complete prior to the transfer, the new servicer generally must evaluate it within 30 days of when the prior servicer received it. For involuntary transfers, the proposal would give the new servicer at least 15 days after the transfer date to evaluate a complete application. If the new servicer needs more information in order to evaluate the application, the borrower would retain some foreclosure protections in the meantime.
  • Clarify servicers’ obligations to avoid dual-tracking and prevent wrongful foreclosures: The rules currently prohibit a servicer from proceeding to foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. The proposal purports to clarify what steps servicers and their foreclosure counsel must take to protect borrowers from a wrongful foreclosure sale.
  • Clarify when a borrower becomes delinquent: The proposed rule attempts to clarify that delinquency, for purposes of the servicing rules, begins on the day a borrower fails to make a periodic payment. Under the proposal, when a borrower misses a payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date of delinquency advances. The proposal also would allow servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full payment by a small amount.
  • Provide more information to borrowers in bankruptcy: Currently, servicers do not have to provide periodic statements or loss mitigation information to borrowers in bankruptcy. The proposal would generally require servicers to provide periodic statements to those borrowers, with specific information tailored for bankruptcy. Servicers also currently do not have to provide certain disclosures to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act. The proposal would require servicers to provide written early intervention notices to let those borrowers know about loss mitigation options.

The proposed rule is subject to a 90 day comment period.  A full copy of the rule is available at the following link:  Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act.

CFPB Issues First Enforcement Action Under New Mortgage Servicing Rules

On September 29, 2014, the Consumer Financial Protection Bureau (CFPB) announced it had issued its first enforcement order under the agency’s new mortgage servicing rules that went into effect in January 2014.  The action claims that the servicer, a Michigan-based federal savings bank and loan servicer, did not comply with the agency’s servicing rules concerning loss mitigation efforts to assist borrowers who had defaulted on their mortgage obligation.  The servicer, which did not admit the allegations, issued a statement noting its history of successful loan modifications and its interest in fousing on its business (rather than a costly and protracted dispute with the emerging federal agency):  “This resolution is in the bank’s best interest and allows us to continue building a great company that is poised for sustainable, long-term growth and value creation, benefitting our shareholders, customers and the communities we serve,” bank CEO Alessandro (Sandro) DiNello said in a statement. “The dedicated employees of Flagstar Bank have completed thousands of successful loan modifications and work incredibly hard to meet and exceed the needs of our customers.”

The conduct alleged by the CFPB occured begining in 2011, and much of the conduct criticized by the CFPB took place before the new servicing rules became effective.  CFPB Director Richard Cordray said in a statement that the action “signals a new era of enforcement” relating to loan servicer activities.  The allegations concerned the loan servicer’s loss mitigation efforts, and focused on such specific details of the servicer’s operations as the number of employees dedicated to loss mitigation and wait time to process borrower requests.  The enforcement order requires that the servicer, among other things, pay $27.5 million to approximately 6,500 consumers whose loans it was servicing (regardless of whether the borrower had defaulted on the mortgage loan); to terminate acquisition of default servicing rights from third-parties until the servicer demonstrates to the CFPB it has the ability to comply with servicing rules; and a $10 million civil penalty.  Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions who the agency claims to have violated the January 2014 mortgage servicing rules.  The agency has broad authority to take action against institutions it alleges has engaging in unfair, deceptive, or abusive practices.

Read more:  Mortgage News Daily; Wall Street Journal on-line; USA Today.

SEC Awards Whistleblower $30M Under Dodd-Frank Act, Sets Record

On September 22, 2014, the U.S. Securities and Exchange Commission (SEC) announced that it expects to award more than $30 million to a whistleblower who provided information that led to a successful SEC fraud enforcement action.  The award is the highest whistleblower payment under the SEC’s three-year-old Dodd-Frank whistleblower program.  According to the SEC, the final award will range from $30 million to $35 million, and is the fourth payment made to a whistleblower living in a foreign country. The previous high SEC whistleblower payment,  announced in October 2013, was $14 million.  In a written statement, SEC Enforcement Director Andrew Ceresney said, “This whistleblower came to us with information about an ongoing fraud that would have been very difficult to detect.  This record-breaking award sends a strong message about our commitment to whistleblowers and the value they bring to law enforcement.”   The SEC’s whistleblower program was established under the Dodd-Frank Act of 2010.  Under the program, the SEC rewards “high-quality, original information” that results in enforcement actions exceeding $1 million.  Awards can range from 10 to 30 percent of the sanctions collected by the SEC.  The whistleblower payments are funded by an investor protection fund financed through enforcement actions.  The SEC has anonymity protection rules preventing it from disclosing the identities of the whistleblower or the enforcement action.

Read more:  Law360 (“SEC To Hand Out Record $30M Whistleblower Award”)The Wall Street Journal (“SEC to Pay $30 Million Whistleblower Award, Its Largest Yet”); Fortune (“SEC Hands out $30 million in largest-ever whistleblower award”)



NY Attorney General Accuses Mortgage Lender of Redlining

On September 2, 2014, the New York attorney general filed a lawsuit alleging that a regional bank engaged in unlawful discrimination by systemically denying access to mortgage loans through “redlining” Buffalo’s African-American neighborhoods.   According to AG’s complaint, the bank created a “Trade Area” map defining its lending area that included most of the city of Buffalo and its surrounding areas, but excluded the predominantly African-American neighborhoods in Buffalo’s East Side.   This practice also extended to locating bank branches, according to the government’s allegations.  The bank denies the claims in the complaint, calling them “meritless” and stating that it is confident its residential lending practices met all applicable laws and regulations.  The New York case is reminescent of redlining cases filed by the U.S. Department of Justice during the 1990s, before the housing bubble and expanded mortgage lending, including U.S. v. Chevy Chase FSB which similarly alleged unlawful redlining practices based on the areas the lender excluded from its primary marketing territory.

Read more:  The Wall Street Journal; The New York Times;


CFPB, Banking Agencies Clarify Post Dodd-Frank Authority to Enforce UDAP Regulations

On August 22, 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, and the National Credit Union Administration issued a statement attempting to clarify that the repeal of credit practices rules applicable to the depository institutions they regulate does not mean that the unfair or deceptive acts or practices described in those former regulations are permissible.  The statement followed the banking and credit union regulators’ repeal of regulations that define acts or practices that are unfair or deceptive as a consequence of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), which itself includes an unfair and deceptive acts or practices (UDAP) provision.  The new agency guidance clarifies that the federal banking and credit union regulators continue to have supervisory and enforcement authority regarding UDAP, notwithstanding the repeal of the regulations.   According to the agency release,

“Depending on the facts and circumstances, certain practices by banks, savings associations, and federal credit unions described in the former credit practices rules that are being repealed may violate the prohibition against unfair or deceptive acts or practices in section 5 of the Federal Trade Commission Act and sections 1031 and 1036 of the Dodd-Frank Act.

The agencies continue to have supervisory and enforcement authority regarding unfair or deceptive acts or practices, which could include the practices described in the former credit practices rules, and the agencies may find that statutory violations exist even in the absence of a specific regulation governing the conduct.”

Read more:   The U.S. Department of the Treasury’s Office of the Comptroller of the Currency bulletin:  Credit Practices Rules; Interagency Guidance Regarding Unfair or Deceptive Credit Practices




On June 4, 2014, the Second Circuit issued a 28-page ruling holding that U.S. District Court Judge Jed Rakoff had “abused” his discretion by rejecting a $285 million U.S. Securities and Exchange Commission (“SEC”) settlement with Citigroup, Inc. because the bank neither admitted nor denied wrongdoing.  The 2011 decision led to increased criticism of the SEC’s use of settlement agreements in which defendants neither admitted nor denied the government’s allegations of wrongdoing, and heightened scrutiny by some judges who were asked to approve such settlements.  The case concerns the SEC’s settlement with Citigroup of allegations that the bank had not properly disclosed to investors matters relating to a $1 billion collateralized debt obligation.  In his November 2011 decision rejecting the settlement, Judge Rakoff said the SEC’s policy allowing “no-admit, no-deny” settlements had turned his court into “a mere handmaiden” to the SEC’s enforcement policies, and that he was unable to determine whether the agency’s settlement was “fair, reasonable, adequate and in the public interest” because the agency had alleged, but not proved, that Citigroup engaged in wrongdoing.  The Second Circuit, noting the deference courts must give to agency decisions, held that it is not appropriate for courts to scrutinize the “adequacy” of SEC settlements, and that there was “no basis in the law” for a district court to require admissions of wrongdoing in SEC settlements.   The Second Circuit ruling provides much needed guidance regarding the court’s role in approving agency settlements. 

Read more:  New York Times:  “Appeals Court Overturns Decision to Reject S.E.C.-Citigroup Settlement“;  Law360:  “2nd Circuit Rakoff Decision Nixing SEC-Citgroup ‘No-Admit” Pact