The NY DFS, the NY Attorney General and the CFPB: What’s in store for the CFS industry

by Ballard Spahr LLP
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Wednesday night , Joy Feigenbaum , the New York Department of Financial Services’ (“DFS”) executive deputy superintendent, and Jane Aziza, the Chief of the Bureau of Consumer Frauds and Protection at the New York Attorney General, spoke at the monthly meeting of the Consumer Affairs Committee for the New York City Bar Association. Not only did Ms. Feigenbaum and Ms. Aziza summarize recent regulatory and enforcement actions taken by their respective agencies, but they also discussed what the consumer financial services industry can expect from the DFS and Attorney General in the coming months.

Ms. Aziza emphasized that her agency remains “frustrated by big banks’ failure to comply” with the servicing standards implemented in the National Mortgage Settlement. She was particularly critical of banks and servicers’ “inability to communicate” with delinquent borrowers. Ms. Aziza did complement one major bank for becoming “really responsive” to borrowers’ needs, noting that this institution had, among other things, redesigned the correspondence used in outreach to delinquent consumers.

In our webinar last month, we discussed the Attorney General’s office’s laser-like focus in strictly enforcing the terms of the National Mortgage Settlement. Thus, it comes as no surprise that compliance with its servicing standards will remain a primary focus of the Attorney General’s office moving forward. Mortgage banks and servicers conducting business in New York that fail to update their loss mitigation policies and procedures to ensure they are in compliance with the CFPB’s Mortgage Servicing Rule and the National Mortgage Settlement do so at their peril.

Ms. Aziza was quite candid in discussing actions on the immediate horizon. She indicated that the Attorney General is contemplating enforcement actions against “foreclosure related scams”, student loan servicers and payday lenders. Most notably, Ms. Aziza mentioned that the Attorney General is studying law firms that offer forbearance or debt relief services to borrowers. She singled out law firms that specialize in “mass action” lawsuits. According to Ms. Aziza, these firms regularly bill consumers for participating in a lawsuit that generally “is not successful.” We applaud the Attorney General’s office for taking a critical look at these “mass action” lawsuits, which have exploded in recent years. From our experience, most of these “mass action” lawsuits are meritless and rarely result in meaningful dollars going to the consumers’ pockets.

Ms. Feigenbaum discussed the DFS’ recent enforcement action against Condor Capital, which as we reported last month was the first legal action brought by a state regulator under Section 1042 of Dodd Frank. She noted that on May 13th the federal court issued a preliminary injunction and ordered the appointment of a receiver. The federal court also granted the secured lender for Condor Capital’s motion to intervene, which according to Ms. Feigenbaum, is rare in a government enforcement action.

Ms. Feigenbaum heralded Section 1042 of Dodd Frank as providing DFS with “great, new authority” to bring enforcement actions against state licensed banks and financial institutions for UDAAP violations. Prior to the passage of Section 1042 of Dodd Frank, the DFS’ remedies were limited to bringing an administrative proceeding or seeking injunctive relief. Ms. Feigenbaum left little doubt that the DFS plans to use Section 1042 in the future against state chartered or licensed entities engaging in UDAAP violations. Given Feigenbaum’s acknowledgement that the DFS complaint database is “a basis for enforcement”, it is imperative that companies regularly review those complaints and proactively address systematic customer complaints.

Ms. Feigenbaum also touched on recent DFS’ actions against debt collectors. She indicated that the DFS has reviewed the comments to its initial debt collection regulations, which govern pre-litigation collection activities and that a revised rule was being finalized. According to Ms. Feigenbaum, there will be a 30 day comment period once the revised rule is released. We believe that the DFS intends to release its final rule ahead of the proposed debt collection rule issued by the CFPB. Given that the CFPB collaborates with the DFS on numerous matters, we would expect the CFPB’s proposed rule to incorporate significant content from the DFS’ regulations. Ms. Feigenbaum also revealed that the DFS would be issuing a comment letter in response to the debt collection default judgment proposal announced last week by Chief Judge Jonathan Lippman. We expect DFS to urge the New York State Unified Court System to adopt language in the proposed form of affidavit which would require the affiant to expressly attest to having personal knowledge of the individual debtor’s loan records.

Finally, Ms. Feigenbaum addressed payday lending, which has been a consistent focus of the DFS. She indicated that the DFS is continuing its investigation of the 16 lead generators which it served with a subpoena last December, and that an enforcement action against one or more of the lead generators was “likely”. We would not be surprised if the DFS relies on Section 1042 of Dodd Frank in bringing these actions.

 

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