Pay-by-phone fees continue to attract the Consumer Financial Protection Bureau’s attention. Compliance Bulletin 2017-01, issued on July 27, 2017, indicates that the following acts or practices may constitute unfair, deceptive, or abusive acts or practices (“UDAAP”) or contribute to the risk of committing UDAAPs:

  1. Failing to disclose the prices of all available phone pay fees when different payment options carry materially different fees;
  2. Misrepresenting the available options or that a fee is required to pay by phone;
  3. Failing to disclose that a phone pay fee would be added to a consumer’s payment, which could create the misimpression that there is no service fee; and
  4. Lack of employee monitoring or service provider oversight, which may lead to misrepresentations or failure to disclose available options and fees.

The Bureau has previously raised concerns about phone pay fees. In a 2014 enforcement action, the Bureau and the Federal Trade Commission alleged that a mortgage servicer engaged in deceptive acts or practices by misrepresenting that the only payment method consumers could use to make timely payments was a particular method that required a convenience fee. In 2015, the Bureau took action against a bank for allegedly misrepresenting that a phone pay fee was a processing fee rather than a fee to enable the payment to post on the same day. The bank also allegedly failed to disclose other no-cost payment options. This week’s Bulletin 2017-01 suggests that companies should disclose such fees in writing to consumers, as opposed to relying solely on phone representatives to  explain the fees to consumers.

Bulletin 2017-01 also reiterates that certain practices in connection with phone pay fees may conflict with the Fair Debt Collection Practices Act (“FDCPA”). For example, Bureau examiners have found alleged violations of the FDCPA where the underlying consumer debt contract did not expressly permit the charging of phone pay fees and where the applicable state law was silent on the fees’ permissibility. The Bureau indicated last year that it may propose rules under the FDCPA to clarify that debt collectors may charge convenience fees only where state law expressly permits them or the consumer expressly agreed to them in the contract that created the underlying debt.

The Bulletin recommends that companies review their phone pay fee practices, including reviewing applicable state and federal laws, underlying debt contracts, service provider procedures, other consumer-facing materials, consumer complaints, and employee incentive plans for potential risks.

On May 15, the Supreme Court held that a debt collector does not violate the Fair Debt Collections Practices Act (FDCPA) by knowingly attempting to collect a debt in bankruptcy proceedings after the statute of limitations for collecting that debt has expired. As explained in Mayer Brown’s Decision Alerts, the FDCPA generally prohibits a debt collector from using false, deceptive, or misleading representations or means in collecting debts. In the opinion for the Court, Justice Breyer looked to state law to determine whether the creditor had a right to payment. Under Alabama law, a creditor has the right to payment of a debt even after the limitations period has expired. Accordingly, a creditor may legitimately claim the existence of a debt even if the debt is no longer enforceable in a collection action. Likewise, the streamlined rules of bankruptcy proceedings mean that it is not obviously “unfair” for a creditor to inject an additional claim into the proceedings, even if it would be unfair for a creditor to file a standalone civil action to collect a time-barred debt.

In addition, the Court also held that the Federal Arbitration Act (FAA) preempts any state law that discriminates against arbitration on its face, and any rule that disfavors contracts with features of an arbitration agreement. Mayer Brown, which represented the petitioner before the Court, explained the case in its Decision Alerts.  The FAA requires courts to place arbitration provisions on an equal footing with other contract terms. However, the Kentucky Supreme Court had refused to enforce two arbitration provisions executed by individuals holding powers of attorney, because the power-of-attorney documents did not specifically mention arbitration or the ability to waive the principals’ right to trial by jury. The Supreme Court held that Kentucky’s rule violates the FAA by singling out arbitration agreements for disfavored treatment, explaining that “the waiver of the right to go to court and receive a jury trial” is a “primary characteristic of an arbitration agreement.” The Court explained that the FAA “cares not only about the ‘enforce[ment]’ of arbitration agreements, but also about their initial ‘valid[ity]’—that is, about what it takes to enter into them.”  The Court also pointed out that a contrary interpretation would make it “trivially easy” for courts hostile to arbitration to undermine the FAA—“indeed, to wholly defeat it.”

For more docket reports and decision alerts, go to Mayer Brown’s appellate.net.

It’s fall, Halloween is over, and the scary clowns (other than those vying for political office) will recede into the forests next to small communities.  Now it’s time to look forward.  Many, we hear tell, cannot do so with joy as they plan for Thanksgiving and the year-end holidays.  Rather, there is a sense of dread and foreboding as mortgage companies, money transmitters, and collection agencies, among others, begin the annual license renewal process through the NMLS.  Before too many deficiencies start haunting your NMLS Account Records, the Consumer Financial Services practice group at Mayer Brown wishes to offer you some cheer to keep your spirits up and 12 terrific tips (indeed, huuuuuge ideas) to help you slog through renewals and minimize deficiencies. Continue Reading A Dozen Tips for Less Stress During the License Renewal Season*

On October 19, a divided Ninth Circuit ruled that a trustee of a deed of trust who takes action to initiate non-judicial foreclosure is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA). See Ho v. ReconTrust Co., NA, No., 10-56884 (9th Cir. Oct. 19, 2016).  The court reasoned that because the object of a non-judicial foreclosure is to retake and resell the property that secures a debt, as opposed to collecting money from the borrower, the trustee was not acting as a “debt collector” under the statute.  In further support of its conclusion, the court reasoned that holding otherwise would create a conflict between the trustee’s duties under state law and its obligations under the FDCPA.

In reaching this conclusion, the majority expressly rejected the position put forth by the Consumer Financial Protection Bureau (CFPB), Continue Reading Ninth Circuit Rejects CFPB Amicus Position as Unpersuasive

Last week the American Association of Residential Mortgage Regulators (AARMR) hosted its 27th annual regulatory conference in Tampa, Florida. Over 300 attendees gathered to exchange information relating to the licensing, supervision, and regulation of the residential mortgage industry.  Here are some of the highlights from the conference:

NMLS 2.0 — What’s on Your Wish List?

By far the hottest topic was “NMLS 2.0,” an effort to modernize the existing Nationwide Multistate Licensing System (NMLS) introduced in 2008.  The NMLS, which was built for mortgage lending licenses, also applies to other types of consumer lenders.  Modernization entails rebuilding the system, not just selected upgrades, to meet anticipated future needs for usability, enhanced functionality, and expansion for use by collection agencies, money transmitters, and installment lenders licensed through NMLS. Initial modernization discussions addressed account management, entity affiliation and application submission, and maintenance. While the overhaul is expected to be complete in 2018, that may be overly optimistic.

Meanwhile, the State Regulatory Registry LLC (SRR), which formally administers the NMLS, has expressed its commitment to consider input from both regulator and industry users of the system as the modernization development continues. If you have been thinking that a single sign-on to assist in the management of multiple accounts, a customizable user role template to assist in the management of your organization users, a more streamlined sponsorship process, or an employment history that is linked to sponsorship for an automated update of your record is on your list of must haves, let us know – we are active participants in the NMLS industry development working group (IDWG), and we frequently submit comments to SRR regarding proposed functional changes to the NMLS.

Examination Findings

Both the state and the federal regulators at the AARMR conference discussed frequent findings in their examinations. Across the country, regulators saw (i) failures in timely filing of advance change notices, (ii) unapproved records storage locations, (iii) property owners who were locked out of their homes even when actively working with the servicer, and (iv) deficiencies in compliance systems. In addition, regulators are starting to look not only at the licensee’s compliance with the individual rules and regulations, but at its ability to test and audit technology-based processes, quickly identify issues, and implement a resolution process.

Vendor Management

Regulators also expressed concerns about licensees’ assessment of risks presented by reliance on vendors.  Many state regulators are requiring more oversight (including auditing) of certain vendors by the licensee.  Regulators warned that a licensee could be penalized for the inappropriate actions of certain vendors, even if the vendor is regulated and examined by another agency.

States Regulators Consider CFPB Rules

Consumer Financial Protection Bureau (CFPB) Deputy Assistant Director Brown discussed the final mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulations X) and Truth in Lending Act (Regulation Z).  That rule addresses loss mitigation, early intervention, and periodic statements.  It also addresses successors in interest, debtors in bankruptcy, and borrowers who send a cease communication request under the Fair Debt Collection Practices Act (FDCPA).

Simultaneously, the CFPB issued an interpretive rule to clarify the interaction of the FDCPA and certain mortgage servicing rules in Regulations X and Z.  The interpretive rule provides safe harbors from liability for servicers : (1) communicating about the loan with confirmed successors in interest; (2) providing the written early intervention notice required by Regulation X to a borrower who has invoked the cease communication right; and (3) responding to a borrow-initiated communication concerning loss mitigation after the borrower has invoked a cease communication right.

Given what we hear from state regulators, do not be surprised if many of the CFPB’s rules find their way into state law.

(Mayer Brown’s Consumer Financial Services Review addressed the CFPB’s final mortgage servicing rules and its FDCPA interpretation here.)

Account Executive Licensing?

The NMLS Ombudsman session included a lively discussion of whether individual account executives of wholesale mortgage lenders must be licensed as mortgage loan originators. After a detailed description of the activities performed by these account executives, a few state regulators recommended licensing, but affirmed that it was not required. Several state regulators declined to respond categorically, but warned that an individual could “step over the line” and be considered a mortgage loan originator if he or she discusses loan terms with the consumer.

Generally, states have adopted the SAFE Act definition of a “mortgage loan originator,” and unless exempt, an individual is required to be licensed if he or she takes a residential mortgage loan application and offers and negotiates the terms of a residential mortgage loan for compensation or gain. As account executives or similar persons perform their duties, they should be aware of whether they are performing those mortgage loan originator activities, regardless of their current professional title.

Keisha Whitehall Wolf served as the Acting Deputy Commissioner for the Maryland Office of the Commissioner of Financial Regulation before joining Mayer Brown.

Nearly three years after releasing its Advance Notice of Proposed Rulemaking on debt collection practices, the Consumer Financial Protection Bureau (CFPB) has finally offered some insight on its plans for issuing rules under the Fair Debt Collection Practices Act. On July 28, 2016, the CFPB released an outline of proposals that it is considering in preparation for the next step in the rulemaking process—convening a Small Business Review Panel. Read more about the proposals under consideration, particularly in light of past CFPB enforcement actions and guidance, in Mayer Brown’s Legal Update, available here.