On the Docket: Recent Federal Court Opinions
REAL ESTATE SETTLEMENT PROCEDURES ACT — REGULATION X
The Eleventh Circuit finds that the regulatory language of Regulation X does not prohibit loan servicers from filing motions to reschedule previously ordered foreclosure sales.
Landau v. Roundpoint Mortgage Servicing Corp. 
, 925 F.3d 1365, (11th Cir. 2019). Regulation X prohibits loan servicers from moving for foreclosure judgment or order of sale, or conducting a foreclosure sale, if the borrower submits a completed loss-mitigation application at least 37 days before the scheduled foreclosure sale. 12 C.F.R. §1024.41(g). A date was set for the plaintiff’s home foreclosure sale before her mortgage-loan servicer offered her a six-month trial loan-modification plan. After the plaintiff accepted the offer of a trial plan, the servicer moved to cancel and reschedule her home foreclosure sale. The plaintiff then successfully moved to cancel the foreclosure sale altogether and separately filed a lawsuit. The lawsuit alleged that the servicer violated Regulation X by moving to reschedule the foreclosure sale instead of cancelling it entirely because a motion to reschedule is in itself a motion for order of foreclosure sale. The servicer argued that it did not violate §1024.41(g) because it did not “move for foreclosure judgment or sale, or conduct a foreclosure sale” — it merely moved to reschedule a previously ordered foreclosure sale. The district court agreed with the servicer.
On appeal, the Eleventh Circuit affirmed, finding that Regulation X does not prohibit a motion to reschedule a foreclosure sale that was set as part of a foreclosure judgment secured before the consumer was participating in a loss mitigation plan. Rather, in this case, the prohibitions of §1024.41(g) prevented the servicer only from conducting the actual foreclosure sale. The court reasoned that a motion to reschedule a previously ordered foreclosure sale is a nonsubstantive “housekeeping” motion, but §1024.41(g) prohibits only “substantive and dispositive” motions, such as a motion for a “previously non-existent” order of sale or foreclosure judgment. The Eleventh Circuit said that interpreting Regulation X to forbid motions to reschedule foreclosures would hurt consumers in the long term because it would disincentivize loan servicers with foreclosure orders in hand from giving borrowers a second chance to modify their loans. The court found the language of Regulation X a sufficient basis for the opinion and, therefore, concluded that, as a matter of law, it did not need to consider the Consumer Financial Protection Bureau’s (Bureau) interpretation of Regulation X. However, the court noted that the Bureau’s interpretations indicate that it does not consider §1024.14(g) to require cancellation of previously scheduled foreclosure sales, but rather, it requires the “suspension” of them; in the court’s view, a motion to reschedule a foreclosure sale is consistent with suspending the foreclosure sale.
FAIR HOUSING ACT/EQUAL CREDIT OPPORTUNITY ACT
The U.S. Department of Justice (DOJ) reaches a settlement agreement in its redlining lawsuit against First Merchants Bank.
United States v. First Merchants Bank (S.D. Ind. 2019). On June 13, 2019, the DOJ and First Merchants entered into a settlement agreement to resolve the DOJ’s lawsuit under the Fair Housing Act (FHA), 42 U.S.C. §§3601-3619, and the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§1691-1691f, alleging discriminatory redlining practices. "Redlining," as defined in the interagency fair lending procedures, “is a form of illegal disparate treatment in which a lender provides unequal access to credit, or unequal terms of credit, because of the race, color, national origin, or other prohibited characteristic(s) of the residents of the area in which the credit seeker resides or will reside or in which the residential property to be mortgaged is located.”
The DOJ found that First Merchants avoided providing mortgage credit services to majority-black areas in Indianapolis-Marion County, Indiana, between 2011 and 2017, and included maps in the appendixes to the complaint to demonstrate that First Merchants was not servicing predominantly minority areas. Under the settlement, First Merchants must expand its marketing, lending, and banking services to the neighborhoods it redlined. The bank also agreed to budget $500,000 to community outreach and education efforts for majority-black neighborhoods as well as a $1.12 million loan subsidy fund to increase credit opportunities in these areas and employ new staff to help its leadership oversee the settlement efforts. The bank also agreed to employ a director of community lending to oversee these efforts and coordinate with the Bank’s leadership.
Finally, the bank agreed to open a full-service branch in a majority-black census tract. This case was also extensively discussed during the October 2019 Outlook Live interagency fair lending webinar. The archived webinar, along with the presentation slides, are available on the Outlook Live website.
FAIR CREDIT REPORTING ACT
The Ninth Circuit holds that the Fair Credit Reporting Act’s (FCRA) seven-year reporting window for a criminal charge on a consumer report begins on the date of entry, not the date of disposition.
Moran v. Screening Pros, LLC , 923 F.3d 1208 (9th Cir. 2019). Section 605(a)(5) of the FCRA (15 U.S.C. 1681c(a)(5)) prohibits the disclosure of an “adverse item of information” in a consumer report when the adverse item occurred more than seven years prior to the report’s creation. In 2010, the plaintiff applied for housing with Maple Square Apartments, which requested a tenant screening report from the defendant, The Screening Pros (TSP), which is a consumer reporting agency subject to the FCRA. TSP produced a report that included a misdemeanor charge that was filed in 2000 (2000 charge) and dismissed in 2004. Maple Square denied the plaintiff’s application. The plaintiff brought suit in district court, alleging, among other claims, that TSP violated the FCRA by including the 2000 charge because more than seven years had passed since the charge was entered.
The district court granted summary judgment to TSP, holding that the reporting period for a criminal charge begins on the date of disposition and not the date of entry. Therefore, the 2000 charge did not fall outside the seven-year reporting window. On appeal, the Ninth Circuit reversed, concluding that Congress intended the reporting window to start at the date an adverse action such as a criminal charge is entered, not the date of disposition of the charge. The court also distinguished a criminal charge from records of convictions of crimes, which are excepted from the seven-year reporting limit in the FCRA. Accordingly, the district court’s decision was reversed.
REGULATION X — TRUTH IN LENDING ACT (TILA)
The Sixth Circuit holds that a loan program contract providing two different descriptions of the term annual percentage rate (APR) that are inconsistent with one another is ambiguous and thus requires further review in a court of law.
In Re: Fifth Third Early Access Cash Advance Litigation, 925 F.3d 265 (6th Cir. 2019) . The Truth in Lending Act (TILA) requires lenders to disclose a loan’s APR. A contract governing Fifth Third Bank’s “Early Access” cash advance program disclosed the APR as 120 percent in all cases, regardless of the length of the loan. The plaintiffs, recipients of Early Access loans, alleged that the 120 percent APR figure disclosed was “false and misleading” because, in practice, the APR could run as high as 3650 percent. They pointed out that, while the contract first defined APR as found in Regulation Z (requiring disclosure of the rate on an annual basis), it provided a formula that did not produce an APR that is “expressed as a yearly rate.”
The district court held in favor of Fifth Third, finding that it unambiguously disclosed the way it calculated the rate. On appeal, the Sixth Circuit reversed, finding instead that the contract’s language was ambiguous because “[t]here is no way for the contract’s definition of APR to be consistent with the formula it provides.” The court declined Fifth Third’s request to conclude that the contract is unambiguous as a matter of law and remanded the case back to the district court.
FAIR DEBT COLLECTION PRACTICES ACT (FDCPA)
The Seventh Circuit holds that absent any concrete harm, a debt collector’s defective consumer disclosure under the Fair Debt Collection Practices Act (FDCPA), without an allegation of actual harm or risk of harm, was a procedural violation that does not satisfy the injury-in-fact requirement of Article III.
Casillas v. Madison Avenue Associates, Inc., 926 F.3d 329 (7th Cir. 2019) . The Seventh Circuit affirmed the dismissal of a class-action case alleging that the failure of a debt collector to specify that consumer dispute notices or requests for certain information about the original creditor must be in writing violates §809 of the FDCPA (15 U.S.C. 1692g). That section requires a debt collector to follow certain procedures when notifying consumers about the debt verification process. The defendant sent the plaintiff a debt collection letter that otherwise complied with the FDCPA notice requirements but failed to inform her that any dispute she wishes to initiate about the original creditor must be sent in writing within 30 days to trigger statutory debt verification procedures. The plaintiff alleged that while she had no intention to exercise her right of dispute or verification of the creditor, the defendant’s omission “‘constitute[d] a material/concrete breach of her rights.’” The district court applied the Supreme Court’s holding in Spokeo v. Robbins, 136 S. Ct. 1540 (2016) that a plaintiff cannot satisfy the injury-in-fact requirement of standing simply by alleging that the defendant violated the FDCPA, absent an allegation that the debt collector had caused harm or put her at an appreciable risk of harm. On appeal, the Seventh Circuit affirmed, finding the defendant’s omission as nothing more than a “bare procedural violation” of the FDCPA. Accordingly, the court affirmed the district court’s dismissal.