Financial Services Law Developments: 1/10/21

Thursday, January 14, 2021

FYI: CFPB Issues Taskforce Report on How to Improve Consumer Protection in the Financial Marketplace

Last week the Consumer Financial Protection Bureau released its report from the Taskforce on Federal Consumer Financial Law. It is just shy of 900 pages and includes some 100 recommendations that, if implemented, would broaden the CFPB's regulatory oversight powers.

Noteworthy among the recommendations is that the CFPB be given the authority to license and regulate financial technology companies.

A day after the report's release, the Office of the Comptroller of the Currency issued a statement in which it endorsed the "need for federal charters" for fintechs but said that the regulatory responsibility for that task belongs with the OCC.

Key Recommendations as Stated by the Taskforce

- Authorize the CFPB to issue charters or licenses to nondepository fintech companies, payments processors, and other financial service providers that provide lending, money transmission, and payment services.

- Expand access to the payment system by unbanked and underbanked consumers and ensure consistent treatment by applying the same rules to similar products.

- Research consumer credit reporting issues that arise in connection with a consumer's bankruptcy.

- Consider the benefits and costs of preempting state law where conflicts can impede the provision of valuable products and services, such as regulation of fintech companies.

- The CFPB and prudential regulators should eliminate overlapping examination subject areas and reconcile inconsistent examination standards that unnecessarily expend multiple resources and can cause confusion.

- Dialogue with state regulators to bridge knowledge gaps and streamline regulation.

- Exercise caution (a recommendation for the CFPB, Congress, and other federal and state regulators) in restricting the use of nonfinancial alternative data, which can be very useful indicators of creditworthiness.

- Clarify the obligations of CRAs and furnishers with respect to disputes under the Fair Credit Reporting Act.

- Assess periodically the accuracy and completeness of consumer credit reports.

- Work with other agencies to create a unified regulatory regime for new and innovative technologies providing services similar to banks.

- Establish an independent review of the Bureau's regulatory cost-benefit analyses by staffing an office of the cost-benefit analysis at the Bureau.

Link to CFPB's January 2021 Press Release

Link to Volume 1 of the report

Link to Volume 2 of the report

Quick Background Recap

Back in October of 2019, the Bureau announced its Taskforce on Federal Consumer Financial Law to "examine the ways to harmonize and modernize federal consumer financial laws."

The goal was to "identify the gaps in knowledge" by doing some research to improve a consumer's understanding of the industry or to see whether there were some inconsistencies in existing regulations. A charter was created; money was allocated for the taskforce and additional CFPB personnel. The taskforce was to begin in January of 2020 and provide a report by January of 2021.

Link to the October 2019 announcement

Link to the January 2020 announcement

Link to the Taskforce page

Link to the charter

The Inspiration: the 1968 Commission and 1972 Report

The idea of this taskforce was inspired by the National Commission on Consumer Finance, which was a commission created under Title IV of the Consumer Credit Protection Act of 1968.

A glance at the NCCF report is like a trip back in time. Link to the original 1972 report.

The 1968 Commission was to deliver a report by January 1971 – the report was published in five editions between 1972 and 1973 – regarding the following topics:

- The adequacy of consumer credit arrangements at reasonable rates.

- The adequacy of existing supervisory and regulatory mechanisms to protect the public from unfair practices and ensure the informed use of consumer credit.

- The desirability of federal chartering of consumer finance companies, or other federal regulatory measures.

- The present taskforce was more than just inspired by the idea of the 1968 Commission, many of the same recommendations made by the NCCF in 1973 are essentially recited and woven into the new report, including a significant portion dedicated to recommendations rejected in the wake of the NCCF report such as restrictions on wage garnishment, repossession, and default judgments.

Final Thoughts

At the time of the NCCF's report, the only legislation that existed under which the CFPB now has authority was Truth-In-Lending. Today, however, there is an extensive body of federal regulation of consumer financial services and an entire federal agency devoted to the subject.

Given this backdrop, the taskforce's remark that "federal supervision that was still a question at the time of the NCCF is now well evident," is not plausible. Yet it forms the foundation of what the report concludes is needed; namely, even greater regulation including oversight of new and yet to be discovered services and technologies that fall within its expansive view of what constitutes a consumer financial product or service.

As outlined in a recent study by the Mercatus Center at George Mason University, the impact of such outdated policies reduces the availability of financial services provided by small, innovative and community-based institutions.

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751

Mobile: (312) 493-0874
Email: rwutscher@MauriceWutscher.com

Admitted to practice law in Illinois

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Monday, January 11, 2021

FYI: 2nd Cir Holds Debtor Entitled to Bankruptcy Homestead Exemption for Non-Primary Residence

The U.S. Court of Appeals for the Second Circuit recently held that property in which a debtor's dependent son lived part-time with his father qualified for the so-called homestead exemption contained in section 522(d)(1) of the Bankruptcy Code, regardless of state law.

A copy of the opinion is available at: Link to Opinion

The debtor and her former husband jointly owned a home that the former husband used as his primary residence. The debtor lived in an apartment in a nearby town with their son, who spent several days a week with the former husband at the subject property pursuant to the parties' parenting plan.

The attorney who represented the debtor in her divorce case sued her for unpaid fees and obtained a judgment for $70,943.40 plus interest, and recorded the judgment as a lien against the property.

The debtor filed bankruptcy, listed her interest in the property as exempt under 11 U.S.C. § 522(d)(1) and moved to avoid the judgment lien on the property. As you may recall, under § 522(b)(1), "[w]hen a debtor files for bankruptcy, she may 'exempt' certain interests from her 'estate,' thus removing them from the pool of assets available to satisfy her creditors."

Although the debtor admitted she didn't reside at the property, she argued that she was still entitled to the homestead exemption because her dependent son lived there part-time. The attorney creditor argued in opposition that "the term 'residence' in § 522(d)(1) should be read to mean 'primary residence.'"

The bankruptcy court granted the debtor's motion to avoid the judgment lien because her dependent son used the property as a "residence."

In so ruling, "the bankruptcy court rejected what it called the 'majority state law approach,' … [under which] courts interpret the word 'residence' in § 522(d)(1) by looking to the definition of 'homestead' under the relevant state's law, a definition which, in turn, often equates 'homestead' with 'primary residence.' … Instead, the bankruptcy court adopted what it called the 'minority plain meaning approach,' under which the terms 'residence' is interpreted, using traditional canons of construction, to include primary and non-primary residences."

The attorney creditor appealed to the district court, which "adopted the plain-meaning approach" and held that the debtor's interest in the property was exempt under § 522(d)(1) and the judgment lien was thus avoidable under § 522(f)(1)(A).

The creditor appealed to the Second Circuit, which affirmed the district court's judgment, concluding "that the term 'residence' in § 522(d)(1) covers both primary and non-primary residences."

The Second Circuit reasoned that the language of § 522(d)(1) "is unambiguous and the statutory scheme is coherent and consistent[,]" such that there was no need to engage in any further statutory construction by looking to how state law defined homestead.

"First and foremost, the ordinary meaning of the word 'residence' does not exclude non-primary residences. Unlike the concept of domicile, residence requires only 'bodily presence as an inhabitant in a given place,' and not a permanent intention to remain. … 'A person thus may have more than one residence at a time….' Congress's use of the standalone term 'residence' — as opposed to 'primary residence' or 'principal residence' — thus suggests that the homestead exemption is not limited to primary residences."

Because "[t]he text of the statute … militates quite clearly in favor of interpreting the term 'residence' in § 522(d)(1) to include both primary and non-primary residences[,]" and "Congress could have used the term 'homestead' or … 'principal residence' in § 522(d)(1), but it did not", the Second Circuit affirmed the judgment of the district court in favor of the debtor.

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751

Mobile: (312) 493-0874
Email: rwutscher@MauriceWutscher.com

Admitted to practice law in Illinois

Our updates and webinar presentations are available on the internet, in searchable format, at:

Financial Services Law Updates

and

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and

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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.