Maryland Legal Alert for Financial Services

In this issue:

• A SURVEY OF CFPB UDAAP ACTIONS
• INCREASED DUTY ON SERVICE PROVIDERS TO WATCH FOR CLIENT MISDEEDS?
• CONTINUING THE DEALER MARK UP CONVERSATION
• DEBT COLLECTORS IN FOURTH CIRCUIT SHOULD REVIEW COLLECTION NOTICES

A SURVEY OF CFPB UDAAP ACTIONS

On January 3, 2014, John Morton (together with his co-author Adam Maarec of McIntyre & Lemon, PLLC) published an article for the American Bar Association Consumer Financial Services Young Lawyers Subcommittee, A Survey of Activities Identified as Unfair, Deceptive, or Abusive by the CFPB. This article provides a detailed summary of all of the enforcement actions brought by the CFPB concerning UDAAP violations in 2012 and 2013. A review of the specific acts or practices identified by the CFPB as being problematic and resulting in UDAAP violations is instructive for industry participants in conducting their own internal compliance reviews to ensure that they do not engage in similar practices. If you have questions about this article or the CFPB, or would like assistance with any compliance review, please contact John Morton.

INCREASED DUTY ON SERVICE PROVIDERS TO WATCH FOR CLIENT MISDEEDS?

A recent complaint and consent order in a lawsuit brought by the U.S. Department of Justice (DOJ) against a bank may raise the bar on how much service providers need to focus on the activities of their clients (please click here to review the DOJ complaint). The action is the opening salvo in the DOJ's "Operation Choke Point" initiative, and the consent order entered in early January 2014 details the imposition of $1.2 million in civil penalties and broad injunctive relief concerning the bank's dealings with a third party payment processor who served payday lenders. The DOJ alleged that the bank had knowingly participated in a wire fraud scheme based on the excessively high ACH return rates of the payment processor's payday lender clients – return rates between 30-60% in some cases. Service providers – especially financial institutions – who deal with companies that the DOJ views as high risk (e.g., payday lenders, credit repair organizations, mortgage assistance relief companies, and telemarketers) should consider the implications of this action. Please contact Christopher Rahl or John Morton if you would like to discuss this subject.

CONTINUING THE DEALER MARK UP CONVERSATION

In our January 2014 Maryland Legal Alert, we described a December 2013 consent order between the CFPB, in coordination with the Department of Justice, and a bank along with its holding company, affiliates, and subsidiaries, regarding alleged discriminatory automobile dealer financing. We also linked to the CFPB's March 2013 bulletin on this same subject. These developments, among others, prompted the National Automobile Dealers Association to prepare guidance to assist automobile dealers in reducing risks associated with discrimination claims related to their financing activities. Dealers, as well as financing sources, that purchase retail installment sale contracts should find the NADA Fair Credit Compliance Policy and Program of interest. Please contact Margie Corwin if you would like to discuss this subject in greater detail.

DEBT COLLECTORS IN FOURTH CIRCUIT SHOULD REVIEW COLLECTION NOTICES

A class action lawsuit was filed in the Eastern District of North Carolina alleging that a debt collector's notice of debt, required by the Fair Debt Collection Practices Act, violated the FDCPA when it required a consumer who wants to challenge the validity of the debt to submit that challenge in writing. The lower court agreed with the debt collector that the FDCPA allowed the collector to require a consumer's dispute to be in writing and dismissed the case. The plaintiffs appealed. On January 31, 2014, the U.S. Court of Appeals for the Fourth Circuit issued a decision finding the FDCPA provision that gives consumers the right to dispute the validity of the debt allows that dispute to be made orally. This means that the Fourth Circuit is now aligned with the Second and Ninth Circuits on this legal issue. The Third Circuit has held to the contrary, finding the applicable FDCPA provision allows the collector to impose a requirement that the consumer dispute the validity of a debt in writing. We thank Goodwin Proctor LLP for bringing this case to our attention. Please contact Margie Corwin or John Morton if you have debt collection questions.