Federal Reserve Board Proposes to Repeal Its Regulation AA (Unfair Credit Practices)

acts and regulations

The Board of Governors of the Federal Reserve System is requesting comment on its proposal to repeal its Regulation AA, which for nearly 30 years has prohibited banks from engaging in specified unfair and deceptive credit practices.

In the Federal Trade Commission Act (the FTC Act), Congress directed the Federal Trade Commission (FTC) and the Federal Reserve Board to promulgate rules to define and prevent unfair and deceptive acts and practices. The Federal Reserve Board’s rulemaking authority under the FTC Act was limited to banks. Pursuant to this authority, the Federal Reserve Board adopted Regulation AA in 1985, closely following the FTC’s rule adopted a year earlier.

Regulation AA had prohibited banks from obtaining or using:

  • Cognovits and advance confessions of judgment;
  • Waivers of state law exemptions of property (other than collateral for a loan) from attachment;
  • Most assignments of consumers’ wages; and
  • Non-possessory security interests in household goods, other than purchase-money security interests.

In addition, Regulation AA prohibited banks from:

  • Misrepresenting the nature or extent of liability of co-signers;
  • Obtaining a co-signer unless certain disclosures were made; and
  • Imposing a late payment fee when the only delinquency is attributable to the failure to pay late payment fees on earlier installments (i.e., “pyramiding” of late charges).

Why is the Federal Reserve Board getting out of the business of regulating such practices? The answer lies in the Dodd-Frank Consumer Financial Protection Act of 2010 (the Dodd-Frank Act).

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Time is Running Out to Complain About the Complaint Portal

Consumer Financial Protection Bureau

You have 4 days! August 22, 2014 is the deadline to submit your comments in response to the Consumer Financial Protection Bureau’s (CFPB) proposed disclosure of consumer complaint narrative data. (https://federalregister.gov/a/2014-17274).

The CFPB maintains a public Consumer Complaint Database through which consumers may file complaints regarding financial services and products (commonly referred to as the “Complaint Portal”). The CFPB currently discloses certain complaint data it receives through the Complaint Portal. The data includes: the type of financial product, a general description of the issue, the consumer’s state and zip code, the name of the financial services company, the date the complaint was received and sent to the company, whether the CFPB has received the company’s response, whether the company’s response was timely, and whether the consumer disputed the company’s response. The company’s response is not currently included, other than one of the following general descriptions: dispute is in progress, closed with explanation, closed with non-monetary relief, or closed with monetary relief. The CFPB now proposes that in addition to the above information, it will publish the consumer’s narrative of the complaint and the financial services company’s response.

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Blast Fax Cases Now Harder to Certify

acts and regulations

Blast fax cases filed under the Telephone Consumer Protection Act just became harder to certify in Minnesota. On August 5, 2014 U.S. District Court Judge David S. Doty, in the case Sandusky Wellness Center LLC v. Medtox Scientific, denied Sandusky’s motion for class certification because the members of the proposed class were not objectively ascertainable.

Here are the facts. On February 21, 2012 Medtox sent an unsolicited fax advertisement to Sandusky.  Medtox is a toxicology laboratory that sells lead screening products. Because lead is particularly harmful to children, Medtox focuses its advertising on pediatricians, family practitioners and health organizations that work with children. It gathers names and numbers of potential customers from health insurance provider directories. Sandusky is a chiropractic clinic.

The February 2012 fax Medtox sent to Sandusky was intended for a family practitioner named Dr. Bruce Montgomery. Dr. Montgomery used Sandusky’s offices once a week to see patients. He had provided Sandusky’s fax number for placement in a health insurance provider directory. Neither Sandusky nor Dr. Montgomery gave express permission to Medtox to fax advertisements. The fax cover sheet did not indicate an intended recipient. Continue reading this entry

Remedies Against Receiver Must Be Exhausted Before Claim Against Assignee

From the consumer plaintiffs’ perspective, a recent appellate decision in Rundgren v. Washington Mutual Bank, FA, is far from Utopia.

The U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of claims brought by singer-songwriter Todd Rundgren and his wife Michelle Rundgren against JPMorgan Chase Bank, N.A. (Chase). Since the Rundgrens’ claims relate to alleged acts of a lender that was later placed in a receivership of the Federal Deposit Insurance Corporation (FDIC), the subsequent assignee of the loan can’t be sued until the Rundgrens exhaust their administrative remedies against the receiver.

The Rundgrens’ claims are based upon alleged fraudulent actions and violations of the Truth in Lending Act (TILA) and other consumer laws in connection with a loan refinancing in early 2008 by their mortgage lender, Washington Mutual Bank (WaMu). According to the Rundgrens, WaMu, among other misdeeds, falsified the loan application, inflated the Rundgrens’ assets and income, misled the Rundgrens regarding loan document terms, and secured a fraudulent appraisal. Later in 2008, WaMu was seized by the Office of Thrift Supervision and placed into receivership by the FDIC. The FDIC, as receiver, later sold the Rundgrens’ loan to Chase pursuant to a Purchase and Assumption Agreement, under which the receiver retained (and Chase did not assume) liabilities for borrowers’ claims arising from WaMu’s acts.

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CFPB to Shine Spotlight on Mini-Correspondent Mortgage Lending?

On July 9, 2014, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued Policy Guidance on the issue of Mortgage Brokers Transitioning to Mini-Correspondent Lenders (“Policy Guidance”), which highlights risks and considerations that should be taken into account by brokers who may be considering or venturing into the mini-correspondent channel.

The Mini-Correspondent Model

Mini-correspondents are mortgage lenders that close the loans in their own name but that operate with limited net worth. Mini-correspondents fund mortgage loans using warehouse lines of credit, which are sometimes supplied by the entities that will purchase the loans. Mini-correspondents vary in size and structure, but many have leaner operations and staffing than lenders in other channels. Under some—but not all—arrangements, the investor may underwrite, condition, and issue closing instructions as is done in the broker/wholesale model. Continue reading this entry