In January, we wrote about the CFPB’s latest lawsuit predicating an alleged federal UDAAP violation on the violation of a state law. The case involves claims against a mortgage lender who allegedly employed individuals working as loan originators, but who were not licensed as loan originators as required by state law. We noted that the CFPB claimed this conduct not only violated Regulation Z—which requires loan originators to be licensed in accordance with state law—but was also deceptive. The deception claim only alleged that the misrepresentation that the loan originators were licensed “might have” impacted consumer decisionmaking. As we previously noted, however, “a representation is only material if it is ‘likely’ to affect a consumer’s behavior—that a consumer ‘might have acted differently’ is not enough.”

The CFPB has now apparently recognized the deficiency in its pleading and recently filed an amended complaint in the case. The amended complaint adds no new claims; its primary purpose appears to be shoring up the deception claim by striking “might have” and replacing it with “would likely have,” so that the CFPB’s allegation now reads: “[The Lender’s] misleading misrepresentations, omissions, or practices were material because a reasonable consumer would likely have acted differently, including by taking their business elsewhere, saving time and money, if informed of the truth.” (emphasis added) To drive the point home, the CFPB has also added a new paragraph to the complaint alleging that “[the Lender’s] express misrepresentations were material to consumers’ decision-making with respect to choosing their mortgage originator, because they presumptively affected the consumer’s conduct or decision with regard to their mortgage originator.” (emphasis added) Here, the CFPB is relying on the principle that express misrepresentations are presumed to be material. These edits appear to cure the prior pleading deficiency, but it will be interesting to see if the defendant or the court pick up on the CFPB’s prior formulation to argue that the Complaint does not allege any facts demonstrating such likely consumer reliance. In any event, the CFPB appears firmly committed to alleging federal UDAAP claims whenever it believes it can do so, regardless of whether other more clearly applicable claims also apply to the conduct at issue.

Businesses that place phone calls or send text messages to consumers may find some relief in a recent United States Supreme Court decision that limits the applicability of the Telephone Consumer Protection Act (“TCPA”). The TCPA prohibits any person from placing phone calls (including text messages) to a wireless number using an automated telephone dialing system (“ATDS” or an “autodialer”) or pre-recorded or artificial voice without the recipient’s prior express consent (or, for marketing calls, prior express written consent), unless the call is made for an emergency purpose.  Courts and businesses have disagreed over what constitutes an “autodialer” for TCPA purposes.

The Supreme Court ruled on April 1, 2021, in Facebook v. Duguid, that the key to whether a device is an “autodialer” under the TCPA is whether it uses a random or sequential number generator.  Under the Court’s ruling, an “autodialer” is a device with the capacity either to store a telephone number using a random or sequential generator, or to produce a telephone number using a random or sequential number generator.  A device that can store and dial telephone numbers—such as a cell phone or a predictive dialer—but that does not use a random or sequential number generator, is not an autodialer.

Prior to the Supreme Court decision, some lower courts interpreted “autodialer” under the TCPA more broadly. The Ninth Circuit Court of Appeals issued a unanimous decision in September 2018 holding that an autodialer includes equipment that (i) either has the capacity to store numbers to be called, or to produce numbers to be called using a random or sequential number generator, and (ii) has the capacity to dial such numbers. Under this broad interpretation, any communications device that can store and dial phone numbers could be considered an autodialer.  For example, even if a customer service agent were to manually dial a consumer’s number using a cell phone, since the cell phone theoretically has the capacity to both store and dial numbers, it arguably would be considered an autodialer. If the business did not obtain sufficient consent from the consumer, such calls would violate the TCPA.

The TCPA has been a common source for class action lawsuits due to the potential for lucrative damage awards. In addition to authorizing enforcement actions by the Federal Communications Commission or state attorneys general, the TCPA provides for a private right of action under which plaintiffs may recover up to $1,500 per call for willful or knowing violations, among other relief, with no cap on damages. The Supreme Court’s decision may slow the wave of TCPA class actions, which would be a welcome relief to businesses.

Read more in Mayer Brown’s Supreme Court Decision Alert and Class Action Defense Blog.

One of the great ironies of the Supreme Court’s decision in Seila Law v. CFPB, in which the Supreme Court held that the Consumer Financial Protection Bureau’s (CFPB) structure was unconstitutional, is that it effectively provided no relief to Seila Law, the party that took the case all the way to the Supreme Court. On remand, the Ninth Circuit held that the CFPB’s case against Seila Law could continue. Now, for the first time, a court has held that a pending CFPB enforcement action must be dismissed because of that constitutional infirmity. On March 26, 2021, a federal district court dismissed the CFPB’s action against the National Collegiate Student Loan Trusts, a series of fifteen special purpose Delaware statutory trusts that own $15 billion of private student loans (the NCSLTs or Trusts), finding that the agency lacked the authority to bring suit when it did; that its attempt to ratify its prior action came too late; and that based on its conduct, the CFPB could not benefit from equitable tolling. In doing so, the court avoided ruling on a more substantial question with greater long-term implications for the CFPB and the securitization industry—whether statutory securitization trusts are proper defendants in a CFPB action. Continue Reading CFPB Suffers First Loss After Seila Law

On Thursday (March 26, 2021), Senator Chris Van Hollen (D-MD) introduced a Congressional Review Act (CRA) resolution of disapproval to invalidate the Office of the Comptroller of the Currency’s (OCC) true lender rule. The resolution is co-sponsored by Senate Banking Committee Chair Sherrod Brown (D-OH) and Senators Jack Reed (D-RI), Elizabeth Warren (D-MA), Catherine Cortez-Masto (NV), Tina Smith (D-MN), and Dianne Feinstein (D-CA). Rep. Chuy Garcia (D-IL) participated in the introduction of the resolution, signaling support for the resolution by House Democrats. The Biden Administration has not yet stated its support for the resolution, though President Biden is likely to sign the resolution into law if Congress passes it.

With the statutory deadline for Congress to take up the resolution of disapproval quickly approaching in approximately mid-May, Congress will have to either pass the resolution when it returns in April from its two week recess, or effectively defer to President Biden’s future Comptroller of the Currency to determine the future of the rule. Given the Democrats’ narrow majorities in both houses of Congress, the vote on the resolution is expected to be close with possible defections on both sides of the aisle. If Congress does not pass the resolution by the statutory deadline, the new Comptroller of the Currency could still seek to repeal or modify the rule at a later date. President Biden has not yet announced a nominee for Comptroller. Continue Reading Congress Prepares to Invalidate OCC’s True Lender Rule

On March 11, 2021, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) rescinded its January 24, 2020 Statement of Policy Regarding Prohibition on Abusive Acts or Practices (“Policy Statement”). The Acting Director of the CFPB, David Uejio, has been working quickly to reverse Kraninger-era policies, and the Policy Statement is the latest victim. Under the original Policy Statement, the CFPB said that it would: (1) generally rely on the abusiveness standard to address conduct only where the harm to consumers outweighs the benefit, (2) avoid making abusiveness claims where the claims rely on the same facts that the Bureau alleges are unfair or deceptive, and (3) not seek certain types of monetary relief against a covered person who made a good-faith effort to comply with a reasonable interpretation of the abusiveness standard.

In rescinding the Policy Statement, the CFPB highlighted the Policy Statement failed to (1) provide clarity to regulated entities on the abusiveness standard and (2) prevent consumer harm. In reality, the rescinded guidance is unlikely to have a major impact on the Bureau’s supervisory and enforcement efforts. Below, we highlight key takeaways from the announcement. Continue Reading CFPB Rescinds Policy Statement on Abusiveness

As expected, New York has broadened the reach of its new commercial financing disclosure law less than two months after its enactment.

S.B. 5470 imposed a range of Truth in Lending-like disclosure requirements on a variety of commercial financing transactions. On February 16, 2021, New York Governor Andrew Cuomo signed S.B. 898 into law, clarifying and broadening the effect of the previous legislation.

Read more about the changes that commercial financers should note in Mayer Brown’s Legal Update.

The CFPB announced today that it expects to propose a rule to delay the July 1, 2021 date to comply with the new Qualified Mortgage (“QM”) rule.

The CFPB’s statement provides that the extension would allow lenders more time to make QM loans based on their debt-to-income ratio (and Appendix Q), or based on the fact that they are eligible for purchase by Fannie Mae or Freddie Mac. The CFPB’s goal is to “ensure consumers have the options they need during the pandemic and the financial crisis it has caused, as well as to provide maximum flexibility to the market.”

The statement also is scheduled to appear in the Federal Register on February 26th.

Even more changes could be on the horizon. In addition to the possible delay described above, the CFPB hinted that it may revisit the Seasoned QM Final Rule, and that it will “consider at a later date” whether to initiate another rulemaking to reconsider other aspects of the General QM Rule.

One thing the CFPB did not mention in today’s statements is whether it intends to postpone the availability, scheduled for March 1, 2021, of the new General QM category, which targets loans below a certain annual percentage rate threshold.

On February 22, 2021, the Consumer Financial Protection Bureau (CFPB) filed its first lawsuit since the election and the resignation of former Director Kathy Kraninger. The lawsuit alleges that the defendant engaged in deceptive and abusive practices by charging detained immigrants large upfront and monthly fees to arrange for payment of immigration bonds securing the immigrants’ release. The complaint lays out a rather damning set of facts alleging that the defendant misrepresented the nature of its services to consumers, many of whom do not speak English, and then engaged in aggressive collection actions. As the CFPB’s first lawsuit of the Biden administration, it offers some clues as to the direction of CFPB enforcement. Continue Reading Four Takeaways from the CFPB’s First Lawsuit in the Post-Kraninger Era

On February 4, 2021, the California Department of Financial Protection and Innovation (DFPI or the Department) issued an invitation for stakeholder comments on potential rules that will govern the operations and authority of the Department. This invitation is the first opportunity for industry participants to weigh in on the functions of the DFPI—a newly reconstituted regulator whose oversight will significantly affect many financial services companies operating in California.

The DFPI (formerly known as the Department of Business Oversight) was established by the California Consumer Financial Protection Law (CCFPL), which was enacted last September. In addition to renaming and reorganizing one of California’s financial regulators, the CCFPL grants the DFPI authority very similar to that granted to the CFPB under the Dodd-Frank Act, including expanded regulatory and enforcement powers. And while many licensees are exempt from these new authorities—e.g., mortgage lenders licensed under the state’s Real Estate Law—uncertainty around their scope and implementation should lead all potentially relevant market participants to monitor and consider participating in the rulemaking process. Continue Reading California DFPI Invites Comments on Rules Governing its Operations and Authority

On January 4, 2021, Representative Al Green of Texas, the Chairman of the Subcommittee on Oversight and Investigations for the House Financial Services Committee, re-introduced H.R. 166, titled the Fair Lending for All Act, a bill he previously introduced in 2019. The proposed bill would significantly revise the application and enforcement of the Equal Credit Opportunity Act (ECOA) and would further expand lenders’ collection and reporting obligations under the Home Mortgage Disclosure Act (HMDA). Continue Reading Re-introduced Fair Lending for All Act Proposes Stiffer ECOA Penalties and CFPB Testing Office