Consumer Compliance Outlook: First Issue 2018

On the Docket: Recent Federal Court Opinions


The Eighth Circuit rejects rescission attempt by borrowers who signed an acknowledgment of a receipt of two copies of a notice of right to rescind.

Jesinoski v. Countrywide Home Loans, Inc.PDF External Link 883 F.3d 1010 (8th Cir. 2018). Under the TILA, 15 U.S.C. §1635(a), and Regulation Z, 12 C.F.R. §1026.23(a), a consumer has three business days to rescind certain credit transactions secured by the consumer’s principal dwelling. But this right can be extended to three years if the creditor fails to provide the consumer with either all material TILA disclosures (as defined in Regulation Z) or, generally, two copies of a notice of the right to rescind. Jesinoski is the latest action in a lengthy litigation that went to the U.S. Supreme Court in 2015 (where the court held that the three-year limit applied to the date the borrower sent the creditor the notice of recission, rather than when a recission lawsuit was filed, and remanded to the lower courts for a decision on the merits). The borrowers sought to rescind their loan because they alleged that the lender only provided one copy of the rescission rights notice to each plaintiff, rather than two to each. However, the borrowers had each signed a form acknowledging receipt of two copies of the notice. Under §1635(c) of TILA, a signed acknowledgment form creates a rebuttable presumption that the lender properly provided the required notices. The borrowers argued the acknowledgment provided to them was ambiguous as to the number of copies received and asserted that they had not received all necessary copies. The district court found that the borrowers did not present sufficient evidence to raise questions about the rebuttable presumption and granted summary judgment in favor of the lender. The Eighth Circuit agreed and accordingly affirmed the district court’s decision.


The D.C. Circuit Court of Appeals, sitting en banc, reverses panel’s ruling that the Consumer Financial Protection Bureau’s single-director structure is unconstitutional.

PHH Corporation v. Consumer Financial Protection BureauPDF External Link 881 F.3d 75 (D.C. Cir. 2018) (en banc). In 2014, the CFPB began an administrative proceeding against PHH, a residential mortgage lender, and Atrium, its captive reinsurer, alleging they violated prohibitions against kickbacks and unearned fees under §8(a) of RESPA, 12 U.S.C. §2607(a), by receiving referral fees from private mortgage insurers disguised as reinsurance premiums. When PHH originated a loan requiring private mortgage insurance (PMI), PHH provided the borrower with a list of insurers, all of whom contractually agreed to purchase reinsurance from Atrium if selected to provide PMI.

An administrative law judge agreed with the CFPB that the reinsurance premiums paid to Atrium constituted referral fees prohibited by §8(a) of RESPA and recommended that Atrium disgorge $6.4 million as a penalty. On appeal, the director of the CFPB read RESPA to support a broader finding of misconduct and that the three-year statute of limitations did not apply to administrative enforcement proceedings. Accordingly, the director adjusted the disgorgement penalty to $109 million. PHH appealed to the D.C. Court of Appeals.

In October 2016, the court held that a safe harbor found in §8(c)(2) of RESPA permits a service provider such as Atrium to receive payments for the reasonable market value of “goods or facilities actually furnished or for services actually performed.” The court further held that the CFPB could not retroactively change the U.S. Department of Housing and Urban Development (HUD)’s prior guidance, upon which industry had relied, allowing “captive reinsurance arrangements so long as the mortgage insurer paid no more than reasonable market value for the reinsurance.” The court also held that RESPA’s three-year statute of limitations applies to administrative enforcement actions. Finally, the panel found the CFPB to be unconstitutionally structured because it is an independent agency headed by a single director who could only be removed for cause. However, the court also found that it could remedy the constitutional issue by severing the provision of the Dodd–Frank Wall Street Reform and Consumer Protection Act that only allowed the CFPB’s director to be fired for cause, thus allowing the president to remove the director without cause. The CFPB successfully petitioned for review en banc of the panel’s decision. In January 2018, the court reinstated the panel’s rulings on the interpretation of RESPA and its statute of limitations. However, the court reversed the panel’s ruling that the CFPB’s structure was unconstitutional, holding that its structure is consistent with the president’s constitutional authority and prior Supreme Court decisions. As a result, the penalty against PHH was vacated, and the case was remanded to the CFPB for further proceedings.


The Supreme Court holds that the City of Miami has standing to sue lenders under the Fair Housing Act (FHA) for alleged reverse redlining but remands to lower courts to decide whether the city had asserted a direct enough connection between the banks’ actions and alleged harm to establish damages.

Bank of America Corp. et al. v. City of MiamiPDF External Link 137 S. Ct. 1296 (2017). In 2013, the City of Miami sued Bank of America and Wells Fargo under the FHA, alleging discrimination against Hispanic and African American mortgage borrowers, resulting in economic damages to the city. In particular, the city alleged the banks violated the FHA by originating riskier mortgages on less favorable loan terms to these borrowers than to similarly situated white borrowers (a practice known as reverse redlining) and by failing to refinance or perform loan modifications. The city alleged that this resulted in increased foreclosures in minority neighborhoods, which decreased property tax revenue and increased the demand for city services to address foreclosure blight.

Generally, the FHA permits an “aggrieved person,” broadly defined to include someone who “claims to have been injured by a discriminatory housing practice,” to file a lawsuit for violations of the FHA. U.S.C. 42 §3602(i)(1). The Supreme Court affirmed the Eleventh Circuit’s holding that the city was an “aggrieved person” under the FHA and accordingly had standing to bring a lawsuit. In contrast, the court rejected the Eleventh Circuit’s ruling that any “foreseeable damages” could be recovered. Instead, the court held the plaintiff must establish “some direct relation between the injury asserted and the injurious conduct alleged” and remanded the case to the lower courts to decide if the city’s claims for lost property-tax revenue and increased municipal expenses qualify under this standard.


The Third Circuit holds that a debt collector’s letter proposing to settle a time-barred debt could violate the Fair Debt Collection Practices Act (FDCPA). 

Tatis v. Allied Interstate, LLCPDF External Link 882 F.3d 422 (3d Cir. 2018). The FDCPA prohibits “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. §1692(e). Courts employ a “least-sophisticated debtor” standard to evaluate whether a representation is misleading. The plaintiff’s class-action lawsuit alleged that the defendant debt collector violated the FDCPA by sending a letter to the plaintiff proposing to settle her 10-year-old debt to Bally Total Fitness Holding Corp.

Because the statute of limitations in New Jersey, where the plaintiff resides, is six years, the debt collector could not file a lawsuit to collect it. The Third Circuit previously held in Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011) that a debt collector’s attempt to seek voluntary repayment of an unenforceable debt after the state of limitations had expired did not violate the FDCPA because the debt collector did not threaten legal action. In Tatis, the defendant argued that it did not violate the FDCPA because it did not threaten legal action. However, the court found that the least sophisticated debtor could plausibly believe that the settlement offer could connote litigation, potentially misleading the debtor into believing Allied could legally enforce the debt “because settlement of the debt” referred to the creditor’s ability to enforce the debt in court rather than a mere invitation to settle the account. The case was remanded to the trial court for further proceedings.