The Consumer Financial Protection Bureau’s power to battle abusive practices is at center stage in a California trial against a mortgage servicer, even as Republican lawmakers in Congress weigh a bill that would strip that authority altogether ( Cons. Fin. Protection Bureau v. Nationwide Biweekly Admin., Inc., N.D. Cal., 15-cv-02106, testimony 4/27/17 ).
The CFPB’s authority to attack “unfair, deceptive or abusive acts and practices,” granted by the Dodd-Frank Act, is one of the most important tools in the agency’s enforcement arsenal.
In 2015, the CFPB brought its UDAAP powers to bear against Nationwide Biweekly Administration Inc., Loan Payments Administration LLC and owner Daniel S. Lipsky. The CFPB’s lawsuit said they misled consumers about the savings possible through a biweekly mortgage payoff program that Nationwide calls its “Interest Minimizer.”
A bench trial in that case began April 24 in the U.S. District Court for the Northern District of California. In April 27 testimony, customer Amanda Leckman told Judge Richard Seeborg that she was misled by Nationwide’s representations.
According to Leckman, although Nationwide promised no upfront fees and pledged to apply payments to the loan balance, the company charged a $3.50 fee for each payment, and a $1,026 enrollment fee.
“My impression after reading this letter was that there were no fees,” Amanda Leckman told the court, referring to Nationwide’s promotional materials.
Leckman’s testimony came the day after House Financial Services Committee Chairman Jeb Hensarling (R-Texas) introduced the Financial Choice Act (H.R. 10). The measure, scheduled for mark-up starting May 2, would strip the CFPB of its authority to address “unfair, deceptive or abusive acts and practices.” The agency’s so-called UDAAP authority, a committee summary of H.R. 10 said, is “opaque and ill-defined.”
If signed into law, the H.R. 10 provision would take away a legal tool - the agency’s UDAAP authority – that the CFPB has used in more than two-thirds of all its enforcement actions.
The provision is designed to address “the extremely broad and unchecked authority to punish companies for whatever unspecified acts the CFPB chooses to designate,” Jeff Emerson, a House Financial Services Committee spokesman told Bloomberg BNA in an email statement.
“The CFPB has had six years to write rules defining what practices it considers ‘abusive’ under UDAAP, but it has never written such a rule,” Emerson said. “This, however, hasn’t stopped it from bringing enforcement actions for ‘abusive’ acts and practices.”
Nationwide, which is based in Xenia, Ohio, denied the CFPB’s claims in a July 2015 answer to the lawsuit. The CFPB’s complaint, Nationwide said, “disserves the public interest because it is premised on mathematical and accounting errors, which misstate and misunderstand the nature of savings consumers achieve by paying down the principal owed on a debt more quickly than provided in a standard repayment plan.”
The company’s operations have been temporarily suspended. Seeborg said he expects the trial to be completed sometime this week.
During April 27 trial proceedings, Judge Seeborg asked Lipsky about promotional language that said consumers would lose money if they didn’t contact Nationwide. The letter sent to homeowners suggested they had to confirm their decision with Nationwide and were somehow obligated to provide that with that information.
“You understand that consumers had zero obligation to confirm anything,” the judge said. The language “was meant to just make them pause and think before pitching in the garbage,” Lipsky said. The company also responded to questions from the Ohio Attorney General’s office, and changed some of the material used in scripts read to consumers as part of the signup process, he said.
Allegations of abuse are part of the CFPB’s case against Nationwide, but the court might not even reach that question, according to Ori Lev, a former CFPB deputy enforcement director and now a partner with Mayer Brown in Washington.
“The CFPB has alleged that the practice here was both deceptive and abusive,” Lev told Bloomberg BNA. “If the court finds this to be deceptive, it can stop there, since there aren’t any additional remedies to be had based on a finding of abusiveness. In any event, this does not appear to be the case that will illuminate what abusive means that wasn’t already unfair or deceptive.”
As the trial proceeded, the CFPB April 27 alleged deception, unfairness, and abuse in a separate lawsuit against four online tribal lenders. Lawyers for the lenders in that case criticized the action as overreach by the agency.
Patrick B. Gushue, Jonathan S Urban, Adrienne Warrell, Stephen Jacques and Thomas M. McCray-Worrall, Consumer Financial Protection Bureau, Washington, D.C., represent the CFPB.
Helen Mac Murray and Lisa Messner, Mac Murray & Shuster LLP, New Albany, Ohio, and Kimon Manilius and Samanta D. Wolff, Hanson Bridgett LLP, San Francisco, represent Nationwide and the other defendants.
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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