February 26, 2013

U.S. Supreme Court Rules in FDCPA Case

In a 7-2 ruling, the U.S. Supreme Court held that Rule 54(d) of the Federal Rules of Civil Procedure trumped the Fair Debt Collection Practices Act (FDCPA) when it came to awarding costs to a prevailing party.1 The action, Olivea Marx v. General Revenue Corp., involved a challenge to a ruling by the lower court that awarded $4,500 in costs in favor or the debt collector defendant as the prevailing party. The consumer side argued that under the FDCPA, a debt collector can be awarded costs only if it is found that the claims against it were brought in bad faith and for the purpose of harassment. But as Justice Thomas, the author of the Court’s opinion noted, the statue is silent on whether costs can also be awarded in absence of bad faith. 2

Olivea Marx was represented by the Public Citizen Litigation Group which has expressed a concern that the ruling may result in a “chilling effect” on plaintiffs.3 The CFPB had filed a Amicus brief in support of Marx with both the Tenth Circuit Court of Appeals and the U.S. Supreme Court. In the Tenth Circuit, the CFPB primarily argued two points, 1) that the FDCPA generally bars debt collectors from contacting third parties, even if the third party does not know the contact is related to the collection of a debt, and 2) that a prevailing defendant under the FDCPA can only recover costs if the plaintiff acted in bad faith and brought the action for the purpose of harassment.4 At the U.S. Supreme Court, the CFPB’s Amicus brief focused on the attorneys’ fees issue.

In January 2013, 932 FDCPA lawsuits were reportedly filed by debtors. Whether the number will slow down in the face of the ruling is yet to be seen. However, Mark Schiffman, a spokesman for the debt collection industry group ACA International was quoted following the Marx ruling as stating, “[W]e hope there’s a chilling effect against those cases against collections agencies that don’t have merit.”5

And silence does not displace the background rule that a court has discretion to award costs.”

  • Justice Clarence Thomas writing for the majority in the Fair Debt Collection Practices Act case, Marx v. General Revenue Corp.

Director Cordray at the National Association of Attorneys General’s Meeting

CFPB Director Richard Cordray spoke before the National Association of Attorneys General meeting in Washington D.C. The purpose of the speech was to identify the CFPB’s top priorities for enforcement, supervision and regulation in the immediate future. In essence, four “problems” were identified.6 These problems mirrored those that Cordray outlined for the CFPB’s Consumer Advisory Board on February 20, 2013.

The four “problems” in brief include:

  • Deceptive and misleading marketing of consumer financial products. Cordray noted that “strong and vigilant enforcement,” is critical.
  • Short-term debt solutions, which according to the Director often include “high fees and very short-term repayment obligation.” He noted that the CFPB has been analyzing this area and will be determining how to exercise its authority, while still protecting consumers’ access to short-term credit. Cordray also addressed “off-shore” lenders and acknowledged that the CFPB has been working with State Attorneys General on how to coordinate enforcement efforts against these lenders.
  • “Dead ends,” or problems that the Director said arise when a consumer does not have a say in who provides their financial products or services. This “problem” often arises in the debt collection, mortgage servicing, student loan servicing, third party loan market, and the credit reporting industries.
  • Discrimination in the consumer financial markets based on disparate impact as well as intentional violations. The Director made clear that the CFPB will not tolerate discrimination and will go after violators.

February 27, 2013

Director Corday Seeks to Alleviate Concerns at the Credit Union Nation Association Meeting

At the meeting of the Credit Union National Association in Washington, D.C., Director Cordray spoke on compliance with the newly issued Qualified Mortgage Regulations, Mortgage Servicing Rule and sought to alleviate concerns of many of its members. Noting that credit unions may initially be inclined to lend only in the “Qualified Mortgage” space, Director Cordray expressed confidence in their strong underwriting, and thus expressed that the credit unions should not be “holding back.”

Moreover, a few key exemptions that will apply mostly to credit unions were discussed. Director Cordray focused on the impact the ability to extend qualified mortgage status to certain balloon loans held in portfolio by small creditors in rural or underserved areas. He also discussed the proposed amendments to the Ability-to-Repay Rule that would allow portfolio loans by small lenders, e.g., those which hold $2 billion or less in assets, to be treated as qualified mortgages even if the loans exceed the 43% debt-to-income ratio test. On the Mortgage Servicing Rule, Cordray noted that again the CFPB provided “large chunks” of exemptions for smaller institutions, which covers approximately 98% of credit unions.

Cordray acknowledged that these rules will involve tremendous changes to the mortgage market but he indicated that the CFPB is committed to helping the industry understand them. As mentioned in the CFPB’s previously announced “implementation plan,” it will publish plain-English summaries and also plans to release a readiness guide with checklists for the industry.