Sixth Circuit Holds Non-Borrower Mortgagor Cannot Sue Under RESPA
By Christopher P. Hahn, Maurice Wutscher LLP
On July 18, 2019, in Keen v. Helson, et al, the U.S. Court of Appeals for the Sixth Circuit affirmed dismissal of a homeowner’s claims filed under the federal Real Estate Settlement Procedures Act (“RESPA”), where the homeowner plaintiff was a signatory only on the mortgage, but not the note evidencing the mortgage loan. As you may recall, RESPA only authorizes “borrowers” to sue. Because the term “borrower” is not defined under the statute, the Sixth Circuit was tasked with determining whether the plaintiff was a “borrower” with standing to bring suit under RESPA. Giving the term its ordinary meaning, the Sixth Circuit’s analysis illustrated that a “borrower” must have personal obligations on a loan, and declined to expand the term to include the plaintiff homeowner, on the basis that doing so would not be “broadly construing” RESPA, but rewriting the statute. The Sixth Circuit’s holding reinforced that a plaintiff who does not have personal obligations under the loan agreement is not a “borrower,” and thus cannot assert claims under RESPA.
Members of Congress Scrutinize CFPB on Student Loan Servicing
By Eric Mogilnicki and Lucy Bartholomew, Covington & Burling LLP
On August 13, 2019, the chairs of the House Financial Services Committee, the House Education and Labor Committee, and the House Oversight and Reform Committee sent a letter to Bureau Director Kathleen Kraninger requesting information and records concerning the CFPB’s efforts to protect consumers from unlawful student loan servicing practices. The letter faults the Bureau for, among other things, not releasing an annual report on student loan complaints since 2017, and for failing to fill the position of student loan ombudsman following the August 2018 departure of Seth Frotman, who had criticized the Bureau’s leadership in his resignation letter. The Bureau announced that it had filled that position a few days later.
According to the House Financial Services press release, on the same day, the committee chairs sent similar letters requesting information from Education Secretary Betsy DeVos and three of the largest federally contracted student loan servicers.
CFPB Blog Post on No-Action Letter Recipient Highlights the Value of Alternative Data
By Eric Mogilnicki and Sam Adriance, Covington & Burling LLP
On August 6, 2019, Patrice Ficklin and Paul Watkins of the CFPB published a blog post providing an update on the Bureau’s first No-Action Letter recipient, Upstart Network, Inc. Upstart uses alternative data and machine learning to underwrite credit and pricing decisions. It received the Bureau’s first No-Action Letter in 2017.
In connection with receiving the No-Action Letter, Upstart was required to provide the Bureau with information comparing its underwriting model to a model that relied on standard credit files. The CFPB reported that, based on the information received from Upstart:
· The alternative data model approved 27% more applicants than the traditional model, and yielded a 16% lower average APR.
· This finding held across all tested race, ethnicity, and sex categories.
· Applicants under 25 were approved 32% more often with the alternative model.
· Consumers making less than $50,000 were 13% more likely to be approved with the alternative model.
In addition to these findings, the Bureau also reported that there were no disparities that warranted further testing for fair lending compliance.
CFPB Extends Comment Period on Debt Collection Proposal
By Eric Mogilnicki and Lucy Bartholomew, Covington & Burling LLP
On August 2, 2019, the CFPB announced that it would extend the comment period on its Notice of Proposed Rulemaking under the Fair Debt Collection Practices Act by an additional 30 days to September 18, 2019. According to the notice published in the Federal Register, the extension was requested by consumer advocates and industry trade groups.
CFPB Re-Opens Comment Period on Regulation C Proposal
By Eric Mogilnicki and Lucy Bartholomew, Covington & Burling LLP
On August 2, 2019, the CFPB announced that it is re-opening the comment period on its May 2019 proposal to amend certain coverage thresholds for reporting data regarding closed-end mortgage loans and open-end lines of credit under the Home Mortgage Disclosure Act starting in 2020. The comment period expired in June, but is being re-opened to allow for comment on HMDA data that the Bureau will release later this summer. The new comment period ends October 15, 2019.
CFPB Announces 2020 Regulation Z Thresholds
By Goodwin Procter LLP
On August 1, 2019, the CFPB issued a final rule amending the regulation text and official interpretations for Regulation Z, which implements the Truth in Lending Act (TILA). The CFPB is required to calculate annually the dollar amounts for several provisions in Regulation Z. The final rule revises the dollar amounts for provisions implementing TILA and amendments to TILA, including under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) based on the annual percentage change reflected in the Consumer Price Index (CPI) in effect on June 1, 2019. The changes will take effect on January 1, 2020. For credit cards, the penalty fees safe harbor for 2020 will increase by $1 to $29 for a first late payment. The subsequent late payment safe harbor fee will also grow by $1 to $40. The minimum interest charge disclosure threshold will remain unchanged for 2020 at $1. The loan amount at which HOEPA’s points-and-fees test comes into effect will increase to $21,980, and the HOEPA points-and-fees trigger will rise to $1,099. For qualified mortgages, points and fees cannot exceed 3% for loans of $109,898 or more; $3,297 for loans between $65,939 and $109,898; 5% for loans between $21,980 and $65,939; $1,099 for loans between $13,737 and $21,980; and 8% for loans of less than $13,737.
Executive Order Released on Advancing American Kidney Health
By Samuel R. Henninger
About 37 million Americans suffer from chronic kidney disease. The last stage of chronic kidney disease is kidney failure—also called end-stage renal disease (ESRD). When a patient’s kidney fails, she can no longer survive without dialysis or a kidney transplant. Of the 113,000 people on the national organ waiting list, more than 94,000 need a kidney. Last year, only 21,167 patients received a kidney transplant.
Because of the severe organ shortage, over 100,000 Americans must begin dialysis each year to treat kidney failure. Average life expectancy on dialysis is short: 5–10 years. Dialysis is a treatment that filters a patient’s blood to rid her body of harmful wastes, extra salt, and water. Most patients must travel to a dialysis center to receive treatment; only 12% of American dialysis patients receive it at home.
In 1972, Congress extended coverage under Medicare to patients with kidney failure. About one-fifth of Medicare spending is currently devoted to kidney care—more than $114 billion each year. Medicare is the second largest program in the federal budget.
On July 10, 2019, President Trump issued Executive Order 13879. The order addresses three of the administration’s policy objectives: preventing kidney failure, increasing patient choice, and increasing access to kidney transplants. By 2030, the administration seeks to reduce kidney failure by 25% and double the number of available kidneys.
On July 18, 2019, in connection with the above Executive Order, the Federal Register published proposed rules of the Centers for Medicare & Medicaid Services (CMS). A key part of the proposed rules was a new mandatory Medicare payment model called the End-Stage Renal Disease Treatment Choices Model (ETC Model). The ETC Model would begin on January 1, 2020, and end on June 30, 2026. First, the ETC Model would assess the performance of participating clinicians and facilities, and adjust certain of their Medicare payments upward or downward based on their home dialysis rate and kidney transplant rate (Performance Payment Adjustment). Second, in the first three years of the ETC Model, CMS would positively adjust Medicare payments to participating facilities and clinicians for home dialysis and home dialysis-related claims (Home Dialysis Payment Adjustment).
In addition, the proposed rules described four new voluntary kidney models that are viewed as complementary to the proposed ETC Model: the Kidney Care First (KCF) Model and three Comprehensive Kidney Care Contracting (CKCC) Models. These models will begin on January 1, 2020, and end on December 31, 2025. While the ETC Model would be mandatory across half the country, the KCF and CKCC Model will test the effects on outcomes of higher levels of risk for a self-selected group of participants. In sum, CMS issued the proposed rules to not only enhance the quality of care furnished to Medicare beneficiaries but also reduce Medicare expenditures.
Opioid Manufacturer Ordered to Pay $572M for Role in Crisis
Samuel R. Henninger
On August 26, an Oklahoma state judge ruled that Johnson & Johnson must pay $572 million for its role in the state’s opioid epidemic. Although lawsuits have been filed against opioid manufacturers across the country, this ruling was the first where an opioid manufacturer was held liable and ordered to pay damages for its role in the opioid crisis. Of the roughly 2,500 lawsuits that have been brought by states, counties, and municipalities to hold drug makers responsible for their role in the opioid epidemic, this was also the first case to go to trial. Johnson & Johnson has said it will appeal the decision—arguing that the trial judge incorrectly found that the company was engaging in conduct that was a public nuisance. This ruling comes before a scheduled trial in the multidistrict litigation in Ohio that involves at least 1,600 consolidated lawsuits from cities and counties across the country. If that case continues to trial, the monetary judgment may be much larger. Efforts to settle continue.
Evolving Cybersecurity Safeguards for Tax Professionals
By Michelle E. Espey, Esq. and Stephen E. Breidenbach, Esq., Moritt Hock & Hamroff LLP
The Internal Revenue Service recently reminded tax professionals to be on the lookout for phishing emails designed to steal sensitive data, such as user names, passwords, account numbers or Social Security numbers. Despite major progress by the IRS and its Security Summit partners, including representatives of the software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators, evolving tactics continue to threaten the tax community and the sensitive data of taxpayers. Some of the tactics used by thieves to steal data include: (1) spear fishing; (2) key logging; (3) pretending to be a client; (4) sending links; and (5) ransomware. Cybercriminals launch thousands of attacks like these each day in an attempt to obtain large amounts of sensitive taxpayer data to create fraudulent returns that are harder to detect. Not only do tax professionals need to know how to recognize such threats, but so must their employees. Educating personnel on the risks posed by phishing emails is part of the "Taxes –Security-Together" Checklist, which was released back in July to help tax professionals protect sensitive taxpayer data. Tax professionals are asked to focus on key risk areas such as employee management and training, information systems, and detecting and managing system failures.
Another key security feature highlighted on the Checklist is the importance of creating a data security plan. Federal law requires all "professional tax preparers" to create and maintain an information security plan for client data. Such plans provide an inventory of a company's safeguards, helping companies to spot potential security gaps and better assess how they are protecting their information. This practice has become essential as new and amended laws continue to include specific safeguards that businesses are required to implement. Further, companies are not absolved from liability just because their practices meet this bare minimum. Companies must still implement safeguards that are "reasonable" for their business drawing upon such sources as industry standards (such as the National Institute of Standards and Technology Cybersecurity Framework), regulatory guidelines and the laws themselves.
Companies, which fail to take action now, risk not only regulatory fines and private suits, but also business interruption from successful cyberattacks that could have been avoided. Cybercrime is no longer a coincidence, but a business that attackers continue to adapt to drain more and more of its victims' assets.