Earlier this month, the CFPB took one of its first substantial steps under new leadership, with a Notice of Proposed Rulemaking seeking to rescind the underwriting requirements of the Bureau’s 2017 Final Rule regarding payday loans, vehicle title loans, and high-cost installment loans (the “2017 Payday Loan Rule”). Signed by new director Kathy Kraninger and published on February 6, this proposal is open for comment through May 7, 2019.
This recent proposal seeks to eliminate the “identification” provision in the 2017 Payday Loan Rule that makes it an unfair and abusive practice for lenders to make these types of loans without making a reasonable determination that the customer will have the ability to repay those loans. The new proposed rule also seeks to remove the “prevention” provision, which set forth certain underwriting guidelines that lenders were going to be required to use in an effort to prevent loans from issuing to borrowers not reasonably likely to be able to repay. Also subject to elimination were new recordkeeping and reporting requirements promulgated by the 2017 Rule. Director Kraninger’s new proposal did not seek to remove any of the new payment policies put into effect by the 2017 Rule.
In its Notice, the CFPB reasoned that there was not sufficient evidence to support the 2017 Rule, particularly where the 2017 Rule would prevent many consumers from accessing credit when needed. The CFPB also noted that most states have some degree of regulation in place as to payday loans, with varying levels of oversight and intricacy. To impose an additional federal, uniform requirement over the industry, it maintains, would be overly burdensome to both lenders and consumers seeking credit.
The CFPB acknowledged that, in response to the original proposed 2017 Payday Loan Rule, it received a substantial number of comments from those who observed undesirable consequences from payday lending. However, those comments were far outnumbered by those from consumers who reported that payday loans, title loans, and other applicable products had been a necessary tool for survival in hard times where no other financing was available due to poor or nonexistent credit history.
In the alternative, the CFPB also proposed that enforcement of the 2017 Payday Loan Rule underwriting requirements be delayed due to massive overhaul in technology and training payday lenders would have to undergo in order to meet these underwriting requirements.
Director Kraninger has welcomed comment on all sides regarding this proposal, but it seems likely at this point that the anticipated underwriting requirements of the 2017 Rule will not be implemented or enforced.
The Notice of Proposed Rulemaking to rescind the underwriting requirements may be found here. BSCR will continue to monitor until a final rule is issued.
It is well known to financial services practitioners that a “debt collector” under the FDCPA is prohibited from using false or misleading information in furtherance of collecting a debt, and that a debt collector is liable for the claimant’s attorneys’ fees for such a violation. But a recent decision out of the Fifth Circuit serves as a worthwhile reminder that the conduct of a party and its counsel, as well as reasonableness of the fees, matters in considering whether or not to grant recovery of fees.
In Davis v. Credit Bureau of the South, the defendant’s name alone reveals a violation of 15 U.S.C. §§ 1692e(10), (16), as it had ceased to be a credit reporting agency years before it attempted to collect a past due utility debt from Ms. Davis under that name. Cross motions for summary judgment were filed, and the Court found that the defendant was liable for statutory damages under the FDCPA for inaccurately holding itself out as a credit reporting agency.
Subsequently, Davis’ attorneys filed a motion for recovery of their fees, relying upon 15 U.S.C. § 1692k(a)(3), which states that a debt collector who violates these provisions of the FDCPA “is liable [ . . . ] [for] the costs of the action, together with reasonable attorneys’ fees as determined by the court.” The motion sought recovery of fees in the amount of $130,410.00 based upon on hourly rate of $450.00. The trial court was, as it held, “stunned” by the request for fees and denied the motion. For its holding, the court cited to the fact that there was disposed of by summary judgment with a Fifth Circuit case directly on point, and that there were substantial duplicative and excessive fees charged by Plaintiff’s multiple counsel. The trial court also characterized the rate of $450.00 as excessive in light of the relative level of difficulty of the case and the fact that the pleadings were “replete with grammatical errors, formatting issues, and improper citations.” From this order, Davis appealed.
In its holding, the Fifth Circuit recognized that the FDCPA’s express language, and several other circuit holdings, suggest that attorneys’ fees to a prevailing claimant are mandatory. However, the Court relied upon other circuits that have permitted “outright denial” (as opposed to a mere reduction) of attorney’s fees for FDCPA claims in “unusual circumstances,” as well as other Fifth Circuit cases with similar conduct under other statutes containing mandatory attorney fee recovery, to deny recovery of fees altogether. The Court found there was extreme, outrageous conduct that precluded recovery of fees, where the record showed Davis and her counsel had colluded to create the facts giving rise to the action. For instance, Ms. Davis misrepresented that she was a citizen of Texas rather than Louisiana in order to cause the defendant to mail a collection letter, thus “engaging in debt collection activities in the state of Texas.” Furthermore, Davis and her counsel made repeated, recorded phone calls to the defendant asking repetitive questions in order to generate fees. While the FDCPA’s fee recovery provision was intended to deter bad conduct by debt collectors, the Fifth Circuit found it was even more important in this case to deter the bad conduct of counsel.
The Davis opinion may be found here and is a cautionary tale that attorneys’ fees, as well as behavior throughout a case, may be held under the microscope, even where the law suggests that fees are recoverable as a matter of right.
House Financial Services Committee introduces bill to provide uniform reporting standards in the event of data breachesOctober 17, 2018 | Megan Stumph-Turner
In the spirit of National Cybersecurity Awareness Month, BSCR reports that Rep. Luetkemeyer of Missouri introduced H.R. 6743, a measure aimed at amending the Gramm-Leach-Bliley Act to provide a national uniform standard for addressing cyber security data breaches. The bill has already made some traction, as it was ordered by vote to be reported to committee last month.
Some key amendments would be to revise the following two sections of the GLBA:
Standards with respect to breach notification
Each agency or authority required to establish standards described under subsection (b)(3) with respect to the provision of a breach notice shall establish the standards with respect to such notice that are contained in the interpretive guidance issued by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision titled Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice, published March 29, 2005 (70 Fed. Reg. 15736), and for a financial institution that is not a bank, such standards shall be applied to the institution as if the institution was a bank to the extent appropriate and practicable.
Relation to State laws
This subtitle preempts any law, rule, regulation, requirement, standard, or other provision having the force and effect of law of any State, or political subdivision of a State, with respect to securing personal information from unauthorized access or acquisition, including notification of unauthorized access or acquisition of data.
The full text of the proposed amendments can be found at this link.
It is this second provision that is troubling some state-level authorities. In a letter to Chairman Hensarling, John W. Ryan, the President and CEO of the Conference of State Bank Supervisors (CSBS) expressed concern on behalf of state regulators that the bill, if enacted into law, could hurt efforts to protect consumers more than help. Arguing that the GLBA and state privacy laws already provide sufficient guidance for cyber breach events, Mr. Ryan contends that H.R. 6743 would actually undermine state consumer protection laws, and that it would undermine the authority of state attorneys general and other authorities to enforce reporting requirements.
BSCR will continue to monitor the status of H.R. 6743, and our Financial Services Law Blog will keep the community posted as to pertinent events.
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The BSCR Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry. This blog will inform readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph, and our Financial Services practice.
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