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Melanie Brody is a partner in Mayer Brown’s Washington DC office and a member of the Consumer Financial Services group. She concentrates her practice on federal and state government enforcement matters, primarily for banks, mortgage lenders, auto lenders, credit card issuers, student lenders and other financial service providers. She represents clients in investigations, examinations and enforcement actions by the US Department of Justice, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Federal Reserve Board, Department of Housing and Urban Development, Federal Trade Commission, state banking regulators and state attorneys general.

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On February 22, the Third Circuit sidestepped the Supreme Court’s 2017 holding in Henson v. Santander Consumer USA Inc. and found that a purchaser of defaulted debt qualified as a debt collector under the Fair Debt Collection Practices Act.

In Barbato v. Greystone Alliance, the Third Circuit considered whether an entity that purchased charged off receivables and outsourced the actual collection activity was subject to the FDCPA.  In analyzing the issue, the court explained that the FDCPA’s definition of the term debt collector has two prongs, and if an entity satisfies either of them, it is a debt collector subject to the Act.  Under the “principal purpose” prong, a debt collector includes any person who “uses any instrumentality of interstate commerce or the mails in any business the principal purpose of is the collection of any debts.”  Under the “regularly collects” prong, a debt collector includes any person who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”

The defendant in Barbato, Crown Asset Management, purchased defaulted debt and outsourced the collection function to a third party.  After being sued for allegedly violating the FDCPA, Crown argued (among other things) that under the Supreme Court’s decision in Henson, the Act did not apply to it because Crown owned the debts and thus did not regularly seek to collect debts owed to another.  In response to this argument, the Third Circuit explained that while Henson clarified the scope of the “regularly collects” definition, the Supreme Court “went out of its way in Henson to say that it was not opining on whether debt buyers could also qualify as debt collectors under [the principal purpose prong].”
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Possibly hinting toward a revival of fair lending enforcement following a recent lull, the OCC’s Ombudsman recently declined a bank’s appeal of the OCC’s decision to refer the bank to both DOJ and HUD for potential Fair Housing Act violations.

The OCC’s Ombudsman oversees an infrequently used program for banks that desire to appeal agency

The Consumer Financial Protection Bureau recently proposed amendments to its earlier policy for issuing no-action letters, and proposed a process for participating in a so-called regulatory “sandbox,” which would provide certainty in or exemptions from complying with certain federal consumer protection laws. Comments on the proposals are due by February 19, 2019.

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Federal redlining enforcement has waned in recent years, but redlining risk has not disappeared.  On October 4, two consumer advocacy groups, the National Fair Housing Alliance and the Connecticut Fair Housing Center, filed a law suit accusing a Connecticut-based bank of unlawful discrimination against minority homebuyers. The suit alleges that Liberty Bank, a state-chartered bank

The Summer 2018 edition of Supervisory Highlights –the first one the BCFP has issued under Mick Mulvaney’s leadership – is much the same as previous editions. In it, the Bureau describes recent supervisory observations in various industries, and summarizes recent public enforcement actions as well as supervision program developments.

One aspect of the report that is notably different, however, is the introductory language. In prior regular editions of Supervisory Highlights, the report’s introduction would emphasize the corrective action that the Bureau had required of supervised institutions. It would highlight the amount of total restitution to consumers and the number of consumers affected by supervisory activities, and would note the millions of dollars imposed in civil money penalties.

This new version eliminates all of that discussion from the introduction. Instead, the Bureau has added language emphasizing that “institutions are subject only to the requirements of relevant laws and regulations” and that the purpose of disseminating these Supervisory Highlights is to “help institutions better understand how the Bureau examines institutions” to help industry limit risks to consumers.

The first sentence of the report, which in previous iterations used to say that the Bureau is “committed to a consumer financial marketplace that is fair, transparent, and competitive, and that works for all consumers” now says the Bureau is committed to a marketplace that is “free, innovative, competitive, and transparent, where the rights of all parties are protected by the rule of law, and where consumers are free to choose the products and services that best fit their individual needs.”

Ultimately, time will tell whether this is simply rhetoric or if the Bureau’s supervisory and enforcement posture will be dramatically different from that under Mulvaney’s predecessor.
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On September 5, 2018, a coalition of 14 state attorneys general, led by North Carolina’s attorney general, Josh Stein, wrote to Acting BCFP Director Mick Mulvaney to express “grave concerns” that the BCFP may seek to abandon the federal government’s longstanding position that ECOA provides for disparate impact liability. A copy of the letter can

On July 30, 2018, the U.S. Department of the Treasury issued its much-anticipated report on reshaping Fintech regulation.  “A Financial System That Creates Economic Opportunities — Nonbank Financials, Fintech, and Innovation,” available here, focuses on the regulation of financial technology and makes more than 80 recommendations related to Fintech and nonbank financial policy, including:

On July 26, 2018, the Federal Reserve Board (“FRB”) announced the launch of a new publication called the Consumer Compliance Supervision Bulletin. Similar to the Bureau of Consumer Financial Protection’s (“BCFP”) Supervisory Highlights, the new publication summarizes examiners’ observations from recent supervisory activities and offers guidance on what supervised institutions can do to address consumer compliance risks. The first bulletin focuses on three areas: fair lending, unfair or deceptive acts or practices (“UDAP”), and recent regulatory and policy developments.
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On June 20, the U.S. Department of Housing and Urban Development (“HUD”) published an advance notice of proposed rulemaking (“ANPR”) that seeks public comment on whether and how to amend its 2013 rule under the Fair Housing Act (“FHA”). The ANPR follows HUD’s May 10 announcement of its intention to formally seek public comment on the rule in light of the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., in which the Court recognized disparate impact as a cognizable theory under the FHA, but imposed meaningful limitations on the application of the theory.

The ANPR, together with the statement of Bureau of Consumer Financial Protection Acting Director Mick Mulvaney this spring that the Bureau would be “reexamining the requirements of ECOA” in light of “a recent Supreme Court decision” (i.e., Inclusive Communities), signals that the Trump administration is likely seeking to retreat from the Obama administration’s enthusiastic use of disparate impact liability in lending discrimination cases.

The Disparate Impact Rule and Inclusive Communities

HUD finalized its disparate impact rule in February 2013. The rule codified HUD’s Obama-era view that disparate impact is cognizable under the FHA. In contrast to disparate treatment claims, in which a plaintiff must establish a discriminatory motive, a disparate impact claim challenges practices that have a disproportionately adverse effect on a protected class that is not justified by a legitimate business rationale. The rule states that a practice has a “discriminatory effect” where “it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.” HUD explained that it had “consistently concluded” that facially neutral policies that resulted in a discriminatory effect on the basis of a protected characteristic violated the FHA, and that the rule merely “formalize[d] its longstanding view.” The rule also formalized a three-part burden-shifting test for determining whether a practice had an unjustified discriminatory effect.

At the time HUD issued the rule, the nonprofit Inclusive Communities Project, Inc. was embroiled in a lawsuit against the Texas Department of Housing and Community Affairs, in which it brought a disparate impact claim under the FHA. After HUD issued the disparate impact rule, the Texas Department filed a petition for a writ of certiorari to the Supreme Court on whether the FHA recognized disparate impact claims. In its 2015 decision, the Supreme Court held that disparate impact claims are cognizable under the FHA, but the Court articulated a rigorous standard for a successful claim. The Court did not explicitly address the merits of HUD’s rule, nor did the rule form the basis of its holding. 
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On May 8, 2018, the United States Department of Justice and KleinBank reached a settlement agreement resolving allegations that the bank engaged in mortgage lending discrimination by failing to adequately serve predominantly minority neighborhoods (so-called “redlining”) in and around the Twin Cities of Minneapolis and St. Paul, Minnesota. The settlement resolves one of the only