Foreign statutory trusts that acquire delinquent residential mortgage loans are NOT required to be licensed under the Maryland Collection Agency Licensing Act (the “Act”), based on an opinion released today by the Maryland Court of Appeals. The opinion reverses lower court rulings that called for such licensing. According to the opinion, the Act’s plain language is ambiguous as to whether the Maryland General Assembly intended foreign statutory trusts, acting as a special purpose vehicle in the mortgage industry, to obtain a license as a collection agency. The court conducted a fulsome review of the original legislative history, subsequent legislation, and related statutes to discern legislative intent.

Finding that the original impetus for licensing was to address abuses in the debt collection industry, the court held that the General Assembly did not intend for foreign statutory trusts to obtain a collection agency license under the Act before their substitute trustees filed foreclosure actions in various circuit courts. As a result, the court held that the lower courts improperly dismissed foreclosure actions (which the courts had done simply because the two foreign statutory trusts that had acquired the delinquent mortgage loans were not licensed under the Act before the substitute trustees instituted the foreclosure proceedings).

Of particular interest in the opinion is the conclusion that a foreign statutory trust is not “doing business” as a collection agency. The court wrote:

 Applying that definition of “business” as used in [the Act] to the consolidated cases before us presents further ambiguity. Specifically, the foreign statutory trusts that own the mortgage loans in the cases sub judice do not have any employees or offices, do not have any registered agent, and do not have any specifically identified pursuit in the State of Maryland. Instead, [the trusts] both act solely through trustees and substitute trustees. Therefore, it would be hard for this Court in the first instance to conclude that the foreign statutory trusts engage, either directly or indirectly, in the business of a collection agency when it is hard to deduce if these entities are even conducting “business” under Funk and Wagnall’s definition.

The earlier, now overturned, opinions had set off a frenzy within the Maryland foreclosure bar and the delinquent loan holders they represent. Many foreclosure law firms simply were unwilling to pursue foreclosures unless the owner of a loan that had been acquired in a delinquent status was licensed as a collection agency, and Maryland had to create an entirely new process to license trusts. Underlying the confusion was the view that a trust simply is not “doing business” as a matter of law, and thus a state did not have jurisdiction to require the licensing of the trust. The earlier Maryland opinions followed a twisted logic that a trust may not be “doing business” in the state as a matter of Maryland law on foreign qualifications, but is “doing business” as a collection agency. The plain speaking Maryland Court of Appeals concluded that doing business means doing business, and not doing business means not doing business — a logical conclusion that is elegant in its simplicity.

Nearly seven months into Mick Mulvaney’s tenure as Acting Director of the Bureau of Consumer Financial Protection (Bureau), the agency issued just its second enforcement action under his leadership on June 13, 2018. You may have missed it, as the press release was not pushed out through the Bureau’s email notifications and the cursory press release may have flown under your radar. The settlement is with a parent company and its subsidiaries that originated, provided, purchased, serviced, and collected on high-cost, short-term secured and unsecured consumer loans. The consent order contains allegations of violations of the prohibition on unfair practices under the Consumer Financial Protection Act and of the Fair Credit Reporting Act, and requires the respondents to pay a $5 million civil money penalty. Notably, the consent order does not require any consumer redress, despite Mr. Mulvaney’s stated intent to only pursue cases with “quantifiable and unavoidable” harm to consumers.

Debt Collection Practices

The Bureau alleges that respondents engaged in unfair in-person debt collection practices, including discussing debts in public, leaving the respondents’ “field cards” (presumably identifying the respondents) with third parties (including the consumers’ children and neighbors), and visiting consumers’ places of employment. The Bureau alleges that these practices were unfair because they caused substantial injury such as humiliation, inconvenience, and reputational damage; consumers could not reasonably avoid the harm because consumers were not informed of whether and when such visits would occur and could not stop respondents from engaging in the visits; and any potential benefit in the form of recoveries were outweighed by the substantial injury to consumers. The consent order notes that respondent attempted 12 million in-person visits to more than 1.3 million consumers over a five-year period, and requires respondents to cease in-person collection visits at consumers’ homes, places of employment, and public places. Continue Reading Mulvaney’s Bureau Issues Second Enforcement Action: Debt Collectors Beware?

Last week, we wrote about how the Bureau of Consumer Financial Protection (“Bureau”) under Acting Director Mick Mulvaney had surprisingly doubled down on claims of unfair, deceptive and abusive practices (“UDAAP”) brought under former Director Richard Cordray in a case against a lead aggregator (back when the Bureau referred to itself as the Consumer Financial Protection Bureau). As if to prove the point that the Bureau is not backing off aggressive UDAAP claims, the very next day the Bureau filed a brief  in another case similarly supporting novel UDAAP claims brought under Cordray. The Bureau’s brief was filed in opposition to a motion to dismiss by defendants Think Finance, LLC and related entities. The case involves Bureau claims that Think Finance engaged in unfair, deceptive and abusive conduct when it attempted to collect on loans that were, according to the Bureau, void under state law. Continue Reading UDAAP Strikes Again: The New BCFP Seems a Lot Like the Old CFPB

In an email to staff, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday, November 15, that he will be stepping down this month.  His departure was widely anticipated.  Because the CFPB is headed by a single director – as opposed to a 5-member commission – the agency’s director wields enormous power. Below we address some of the most frequently asked questions regarding Director Cordray’s resignation.

Continue Reading CFPB Director Richard Cordray to Step Down

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: Continue Reading Reflections on AARMR 2016 from a Former Regulator

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.