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The CFPB Issues Warning and Guidance on Obtaining Consumer Authorization for Preauthorized Electronic Funds Transfers that Confirms a Recording of a Consumer’s Oral Authorization Can Satisfy Regulation E’s Requirementsposted on 2015-12-02 by David.Anthony, Ashley Taylor
Protecting the Attorney-Client Privilege: Companies Sue CFPB For Not Allowing Them to Attend Their Former Counsel’s Investigatory Testimonyposted on 2015-11-04 by Ethan G. Ostroff, Keith J. Barnett and Ashley L. Taylor, Jr
In July 2015, several companies that were the targets of non-public Consumer Financial Protection Bureau investigations sued the Bureau after it refused to allow their current counsel to attend the Bureau’s investigative testimony of one of the companies’ former attorneys. The companies wanted one of their current attorneys to attend the testimony and assert the attorney-client privilege when necessary. The companies sought an injunction to prevent their former counsel’s testimony and claimed that the Bureau’s refusal to allow their current counsel to attend violated the Administrative Procedures Act. The plaintiffs and the Bureau appeared to work out their differences with respect to the testimony before the Court reached a decision on the injunction. Notwithstanding the apparent agreement, targets of CFPB investigations should be cognizant of the possibility that the Bureau will likely try to prevent counsel for the targets from attending third party testimony even when there is a serious possibility that the attorney-client privilege will be compromised.
The plaintiffs, who filed all of their pleadings under seal, asked the district court to issue an order directing that the filed documents remain under seal and inaccessible to the public because they did not want the public to know that they were the targets of the CFPB’s investigation. The Bureau opposed plaintiffs’ request. The United States District Court for the District of Columbia issued an Order that required the Clerk of the Court to re-caption the case as a John Doe lawsuit, and directed the plaintiffs to redact identifying information from the pleadings that they had previously filed under seal. The balance of the information in the pleadings would be available to the public.
In its analysis, the Court considered the following:
(1) the need for public access to the documents;
(2) the extent to which the public had access to the documents prior to the sealing order;
(3) the fact that a party has objected to disclosure and the identity of that party;
(4) the strength of the property and privacy interests involved;
(5) the possibility of prejudice to those opposing disclosure; and
(6) the purpose for which the documents were introduced.
The first and sixth factors weighed in favor of denying the plaintiffs’ request. With respect to the first factor, the Court stated that “[t]here is a ‘strong presumption in favor of public access to judicial proceedings’” especially when the government is a party. The fact that the Bureau’s investigation was non-public did not change this analysis because “judicial proceedings are normally open to the public” and sealing the entire proceeding “would thus deny the public even the most basic knowledge of its subject matter.” The fifth factor weighed in favor of denying the request because the plaintiffs did not file documents containing privileged information and they did not identify “a risk that attorney-client privileged information would be made public if this case were unsealed.”
The second and fifth factors weighed in favor of granting the plaintiffs’ request. With respect to the second factor, the public never had access to documents publicly identifying the plaintiffs as targets of the Bureau’s investigation. Although the plaintiffs had filed petitions to modify or set aside the Bureau’s Civil Investigative Demand (CID) and the Bureau usually makes the petitions available to the public through its website, the Bureau had not publicly disclosed plaintiffs’ petitions as of the date of the district court’s Order. The fifth factor weighed in favor of sealing the record because “it is not difficult to see how disclosure of the fact that an entity is subject to investigation by federal authorities would inflict non-trivial reputational and, possibly, associated financial, harm on that entity.” The third factor was not an issue. The fourth factor did not favor either side because although the Bureau’s investigations are non-public, there are circumstances under which a CFPB investigation could be disclosed to the public.
The Doe case epitomizes the paradoxical situation that targets of CFPB investigations face when they—or their agents and service providers—are confronted with a CID. Because the Bureau itself decides whether to grant a petition to quash or modify a CID—and the Bureau has denied every petition that has been filed—investigatory targets know that they have a better chance at prevailing in a courtroom. Although the plaintiffs understandably wanted to make sure that their former counsel was not left to himself to protect the attorney-client privilege, their act of filing a public lawsuit against the Bureau, which presumably facilitated the compromise between plaintiffs and the Bureau, potentially exposed plaintiffs to the public as targets of the CFPB’s investigation. Query whether the outcome of this case would have been different if the Bureau had publicly filed the plaintiffs’ petition to modify or quash the subpoena before the Court rendered its decision. Going forward, parties must weigh the risks of allowing the Bureau to obtain potentially privileged information versus the public knowing that they are the target of a CFPB investigation.
|Justin Brandt, Alan D. Wingfield and Chad Fuller
On October 20, the United States Court of Appeals for the Fifth Circuit delivered its opinion in Ybarra v. DISH Network, LLC (“DISH”), a case involving alleged violations of the Telephone Consumer Protection Act, which prohibits callers from using an automatic telephone dialer system (“ATDS”) and delivering messages with an “artificial or prerecorded voice” without prior express consent of the called party.
Ybarra focused on DISH’s attempts to collect an outstanding balance owed by one of its customers by calling a cell phone number believed to belong to that customer. At some point, the customer relinquished that cell phone number, and Ybarra subsequently became the subscriber to that number. When DISH’s customer failed to pay the account balance, DISH called the phone number now belonging to Ybarra fifteen times from two different DISH phone numbers. (Under recent FCC guidance, the TCPA only allows a “one-call exception” for reassigned numbers; potential liability exists after the first call attempt to a number’s new subscriber, even if the caller has no actual knowledge that the original subscriber no longer utilizes the number.)
There has been confusion regarding whether TCPA liability exists for call attempts using ATDS or prerecorded messages that fail to reach their intended recipient, whether due to lack of answer or other transmission error. In Ybarra, DISH contended that four of the calls did not violate the TCPA because “none of these calls resulted in a prerecorded voice being used because no prerecorded voice was played.”
Based on its strained reading of the TCPA, the Fifth Circuit determined that ATDS calls do not require actual connection to violate the statute because the system is still being “used.” However, the Fifth Circuit came to the opposite conclusion as to prerecorded messages, finding that the prerecorded voice is not “used” if no connection is made.
Although this decision presents a sliver of good news for callers using prerecorded messages, the more onerous outcome is the expansive liability for usage of ATDS even in situations in which contact is not made with the called party. DISH evaded liability for the four calls only because Ybarra failed to produce admissible evidence that those calls were also placed with an ATDS. Plaintiff’s lawyers will likely argue that under the view espoused by the Fifth Circuit, the TCPA can be violated by attempted calls – not just calls that actually reach the intended called party or the called party’s voicemail.
Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategy. We will continue to monitor regulatory any judicial interpretation of the TCPA following this ruling in order to identify and advise on potential risks.
| Justin Brandt, Alan D. Wingfield and Chad Fuller
On October 19, Missouri Attorney General Chris Koster filed a federal lawsuit in the United States District Court for the Eastern District of Missouri against Charter Communications, Inc., alleging violations of federal and state telemarketing and “do-not-call” laws. Koster claims that his office received 350 complaints from consumers “about harassing practices by Charter’s telemarketers … [in] an attempt to sell Charter’s cable, internet, and phone services.”
In addition to the National Do Not Call Registry, Missouri has its own No-Call list of 4.5 million phone numbers, comprised of both cell phones and landlines. Additionally, Missouri’s telemarketing law supplements federal law by prohibiting telemarketers from contacting consumers “repeatedly or continuously in a manner a reasonable consumer would deem to be annoying, abusive, or harassing.”
Koster’s complaint generally alleges that Charter Communications and its vendors “placed at least thousands of telemarketing calls to Missouri consumers, even after the consumers asked that Charter stop calling.” The complaint specifically alleges that individual consumers received dozens of calls in less than a year and up to five calls per day. Despite requests for the calls to cease, Charter allegedly informed consumers that it would take forty-five days to place consumers on its internal do-not-call list.
The complaint seeks substantial damages, including up to $16,000 for each violation of the federal Telemarketing Sales Rule (TSR), at least $500 for each violation of the federal Telephone Consumer Protection Act (TCPA), up to $5,000 for each violation of the state No-Call statute, and an unspecified civil penalty for each violation of the state telemarketing statute. Given the substantial damages potential, it is imperative for companies to institute robust compliance procedures to avoid and/or defend against such litigation.
Koster’s complaint is a reminder that in addition to federal do-not-call requirements of the TCPA and the TSR, many states have their own specific requirements.
Troutman Sanders LLP has unique industry-leading expertise with state and federal telemarketing laws, with experience gained trying such cases to verdict and advising Fortune 50 companies regarding their compliance strategies. We will continue to monitor litigation in this area, especially interpretation and application of unique state telemarketing laws, in order to identify and advise on potential risks.
CFPB Director’s Remarks at MBA Annual Convention: Progress, Updated HMDA Reporting, and Warning to Parties Engaged in Marketing Services Agreementsposted on 2015-10-28 by Ethan G. Ostroff and Mary C. Zinsner
Consumer Financial Protection Bureau Director Richard Cordray addressed the Mortgage Bankers Association at its Annual Convention on October 19. In his remarks, Cordray:
Cordray outlined the tasks the CFPB had accomplished from its initiation as a new agency to address the problems in the mortgage market. Soon after its formation, the CFPB put new rules in place to protect prospective homebuyers and support responsible lenders. These regulations included the “Ability to Repay Rule,” which is sometimes referred to as the “Qualified Mortgage” rule. Critics predicted the rules would cause origination costs to double and lamented that the regulations would lead to the demise of community banks and credit unions. However, according to Cordray, two years later these concerns have not come to pass. Instead, the CFPB believes mortgage lending has increased and that the industry saw only minor consolidation. Cordray reiterated that the restoration of the mortgage and housing market is essential to restoring the American Dream. A home is the most important financial decision most families will ever make. But more importantly, Cordray noted, “a house that becomes a home is much more than four walls and a roof. Instead it is a special place to raise a family and create lasting memories, a place to hold up as a source of pride and accomplishment.”
According to Cordray, the CFPB has been flexible in working with the MBA to meet the needs of lenders and make adjustments to rules where necessary. He noted that the Bureau approved recent amendments to mortgage origination rules to broaden the definitions of “small creditor” and “rural area” because it had been persuaded that the lines it had drawn were too rigid. Over the course of the coming year, the CFPB will be launching a “look-back process” for certain rules, providing another vehicle for lender feedback.
The CFPB has also implemented the “Know Before You Owe” mortgage disclosure rule. According to Cordray, the CFPB recognized the system and operational changes necessary to adjust to the new requirements and allowed for a long implementation period. Cordray acknowledged the struggles lenders were having with vendors and noted that “examiners will be squarely focused on whether you have been making good-faith efforts to come into compliance with the rule.” He further addressed arguments of critics of the rule, articulating again the CFPB’s position that it is necessary for consumers to review closing costs and to compare them to estimates before they get to the closing table to ensure they are getting the deal they were promised. The Home Loan Toolkit was also introduced by the CFPB to guide consumers through the process of buying and shopping for a mortgage. Similarly, the CFPB’s “Owning a Home” online tool provides consumers an interactive internet resource to help consumers make sound decisions about their home purchase.
The next “homework assignment” for the CFPB mandated by Congress is updating the reporting requirements of the Home Mortgage Disclosure Act. Cordray noted that the CFPB recently finalized the HMDA rule. He characterized the new HMDA as a “sunlight” statute intended to educate the public and lawmakers about how lenders are serving housing needs, and that provides an understanding of what is happening in local markets. The new rule will require more robust data such as the requirement that lenders disclose home equity lines of credit, the age of borrowers, and rates and fees charged by lenders. Additionally, the new rule adds other data elements to enable the Bureau to better understand trends, such as the dynamics of manufactured housing. Cordray acknowledged that the HMDA modification will mean yet another implementation process for mortgage lenders. With that in mind, the CFPB has set the date for compliance with most provisions for January 2018, with initial reports including the new data due in early 2019.
In addition to improving available data, the CFPB is also focused on building a better collection system to streamline and modify the reporting requirements. Cordray stated that the four ways the CFPB will achieve this goal are: (1) the final rule aligns definitions with the MISMO standards, the prevailing mortgage data standards in the industry; (2) the CFPB is working with the Federal Financial Institutions Examination Council and HUD to modernize the data submission process to collect information more efficiently; (3) the new rule exempts institutions originating fewer than 25 closed-end mortgage loans or 100 open-end lines of credit from HMDA data reporting requirements; and (4) the CFPB has issued plain-language implementation materials and will soon release a compliance guide for small entities.
Reiterating the CFPB’s purpose as a supervisor and regulator, Cordray closed his remarks with a warning, making clear that the Bureau’s charge includes oversight of the parties to MSAs. He noted the risks stemming from MSAs and the opportunity for parties to pay or accept illegal compensation for referrals of settlement service business. He noted the Bureau’s “grave concern about the use of MSAs in ways that evade the requirements of RESPA,” which is reflected in the bulletin released on October 8, which provided guidance to the mortgage industry with an overview of the federal prohibition on mortgage kickbacks and referral fees, examples from the Bureau’s enforcement experience, and the risks faced by lenders entering into these agreements. He warned that any party participating in MSAs, including lenders, brokers, title companies, and real estate professionals, should ensure compliance with applicable laws and regulations or be prepared to see increased enforcement actions from the CFPB. “We want the industry to follow the rules – because that is good for consumers, honest businesses, and the economy as a whole.”
In closing, Cordray thanked the MBA for its contributions toward making the mortgage market more fair and transparent for all Americans. “Together we are building a more solid foundation so that you can thrive and so that families across the country can make the American Dream their reality.”
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