The CFPB Issues Electronic-Closing Pilot Guidelines And Seeks To Use Technology To Improve the Mortgage Closing Experience

By Yesenia Garcia Perez

The Consumer Financial Protection Bureau (“CFPB”) recently announced that it is launching an electronic-closing (“e-Closing”) Pilot program designed to address some of the most common concerns relating to the mortgage closing process. CFPB states that electronic closing has the potential to address current challenges by shifting the closing experience toward a more paperless process and by facilitating other consumer-friendly improvements.  Common consumer concerns relating to the current mortgage closing process include:

·         Not enough time to review documents – consumers indicate that they do not receive the paperwork until they arrive at the closing table, where there is pressure to rush through and sign the documents without enough time to ensure that they understand what they are signing;

 ·         Overwhelming stack of paperwork- consumers indicate that there are too many pieces of paper involved and that many leave the closing table with uncertainty that something hidden in the paperwork might have long lasting effects on their financial future;

 ·         Documents are difficult to understand – consumers indicate that the closing documents are full of legal and technical jargon and that they often have little help from others in the closing room to gain adequate understanding.

 ·         Errors in the documents – consumers indicate that common errors in closing documents, including misspelled names, can often lead to delays and may require the closing agent to redo the entire closing package.

CFPB’s e-Closing Pilot seeks to explore ideas to improve the closing process using technology and is aimed at encouraging lenders to place consumers in control of their mortgage closing.  The e-Closing Pilot encourages the use of technology to:

 ·      Help explain key terms, the closing process, and important documents;

 ·      Give consumers more time to review the stack of closing documents;

 ·       Help consumers find and fix errors in the documents prior to closing.

Additional information regarding the e-Closing Pilot and the current state of closing is available on the CFPB webpage.

Eleventh Circuit Further Muddies the Waters for Collectors

The Telephone Consumer Protection Act’s safe harbor for calls made with the prior express consent of the called party is destroyed the moment the debtor says, “Stop calling me!” So too, a collector can be liable for autodialed calls to a third party even though a debtor gives that number as her own. These are the conclusions of the United States Court of Appeals for the Eleventh Circuit in the Osorio v. State Farm  decision issued last month. They are sure to prompt creditor and collectors everywhere to reevaluate their dialer practices and procedures.

Here are the facts. Clara Betancourt opened a State Farm credit card account to pay her car insurance premium. During the account opening process State Farm alleged Betancourt said the telephone number she provided was her own. When Betancourt failed to pay timely the minimum balance due on her card, State Farm placed 327 autodialed calls to the number Betancourt provided in an attempt to collect. The problem for State Farm was the number Betancourt gave was not her own. It belonged to her life partner, Freddie Osorio, with whom she lived and had a child. When State Farm’s collection agency FMS, Inc. called to collect, Osorio answered the telephone and stated on two occasions, “Please stop calling.”

Consent Must Come from the Called Party

The Eleventh Circuit ruled that to enjoy the express consent protection of the TCPA, the consent must come from the called party.  This is usually the current subscriber of the telephone. Applying common-law concepts of consent, the Court ruled there was a factual issue as to whether Betancourt had the authority to consent to autodialed calls on Osorio’s telephone. State Farm argued that Osorio’s and Betancourt’s relationship alone required the Court to infer such authority. The Court disagreed, stating:

Parents and cohabitants everywhere would be shocked to learn that every adult in the household is legally entitled to consent to having autodialer debt collectors call any of their phones.

Because there was a genuine issue of fact as to whether Betancourt had the authority to act as Osorio’s agent, the district court improperly granted summary judgment.

Oral Revocation Okay

The court also rejected the notion that a debtor can only revoke consent to be called through a writing.  Again applying common-law principals, the Court found that oral revocation of express consent is permitted. Because Osorio allegedly said stop calling, summary judgment improperly was granted to State Farm. The case was reversed and sent back to the district court for trial.

The Osorio decision is a problem for the collection industry. When a debtor provides a number, how is the creditor to know whether it is accurate? It is probably not uncommon for a wife to provide her husband’s number as an additional contact number. Of additional concern is the mounting body of law finding that oral revocation is possible. If the Osorio view is adopted in more courts, a debt collector or creditor will be hard pressed to win these cases if the debtor testifies that he or she said stop calling. In a typical case the individual employee debt collector will have entered a vague collection note and either will no longer be employed or simply not remember the call. In such situations it is highly probable that the debtor would be believed as to the revocation instruction and TCPA liability will attach to calls made after consent was revoked.

The Osorio case hints at a solution to the revocation problem going forward. In reaching its decision it stated:

We therefore conclude that Betancourt and Osorio, in the absence of any contractual restriction to the contrary, were free to orally revoke any consent previously given to State Farm to call No. 8626 in connection with Betancourt’s credit-card debt.

The Court seems to suggest that one could make an agreement with the debtor that such consent cannot be revoked during the loan term. We predict that revocation issues will soon dominate all debt collection cases involving an autodialer.

When Is a Debt Not a Debt? The Supreme Court May Need to Decide

A recent decision by the Seventh Circuit has held that the Fair Debt Collection Practices Act (“FDCPA”) is violated when a debt collector sends a dunning letter seeking to settle a time-barred debt, even when no litigation is threatened. The Third and Eighth Circuits have disagreed. This sets up a split in the Circuits that the Supreme Court may need to resolve.

All three cases involved letters sent by debt collectors asking debtors to settle debts that could no longer be enforced by legal action. None of the letters threatened legal action, but neither did they disclose that the debts were time-barred.

The FDCPA prohibits the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. Sec.1692e. This statute sets out a nonexclusive list of prohibited practices, including: false representation of the character, amount, or legal status of any debt Sec. 1692e(2)(A); the threat to take any action that cannot legally be taken, Sec. 1692e(5); and the use of any false representation or deceptive means to collect or attempt to collect any debt, 1692e(10). Continue reading this entry

Statements Rendered Credit Report Reseller a Credit Repair Organization

Sounding a cautionary note to the hypercompetitive credit report resale and monitoring industry, the U.S. Court of Appeals for the Ninth Circuit recently held that a reseller’s statements on its website and in television advertisements made it a “credit repair organization” under the federal Credit Repair Organizations Act (CROA), 15 U.S.C. sec. 1679 et seq. (Title IV of the Consumer Credit Protection Act).

The case, Stout v. FreeScore, LLC, No. 10-56887 (9th Cir., Feb. 21, 2014), is a putative class action which alleges that FreeScore, LLC d/b/a FreeScore.com, a consumer credit report reseller,  violated certain requirements of CROA and made misleading statements.  FreeScore successfully moved to dismiss the case, with the U.S. District Court ruling that FreeScore was not a credit repair organization because it “did not make any promises of credit improvement” but merely “promise[d] to provide a consumer with his or her credit score….”  On appeal, the Ninth Circuit reversed the District Court’s dismissal of the case and remanded it for further proceedings, finding that “FreeScore falls squarely within the CROA’s definition of a ‘credit repair organization.’”  Continue reading this entry

CFPB Finalizes Rule on Awards of Expenses, Attorney Fees to Prevailing Parties in Adversary Proceedings

As previously noted on this blog, the Consumer Financial Protection Bureau (CFPB) issued an interim final rule in June 2012 to implement the Equal Access to Justice Act. At the time, the CFPB requested public comment on the interim final rule.

Nearly two years later, the CFPB has now finalized the rule with no changes.

The final rule provides for eligible individuals and entities who are parties to adversary proceedings before the CFPB to receive awards of certain expenses and attorney fees if they prevail in the adversary proceeding or if the CFPB’s demand is substantially in excess of, and unreasonable in comparison to, the decision of the adjudicative officer.

Continue reading this entry