Tag Archives: federal court

Ditching the CFPB’s System of Adjudication

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photo by Mike Licht

Mick Mulvaney is continuing his work of dismantling the Consumer Financial Protection Bureau as we have known it. His latest is the issuance of a Request for Information Regarding Bureau Rules of Practice for Adjudication Proceedings.

Section 1053 of the Act authorizes the Bureau to conduct administrative adjudications. The Bureau in the past has brought cases in the administrative setting in accordance with applicable law. The Bureau understands, however, that the administrative adjudication process can result in undue burdens, impacts, or costs on the parties subject to these proceedings. Members of the public are likely to have useful information and perspectives on the benefits and impacts of the Bureau’s use of administrative adjudications, as well as existing administrative adjudication processes and the Rules. The Bureau is especially interested in receiving suggestions for whether it should be availing itself of the administrative adjudication process, and if so how its processes and Rules could be updated, streamlined, or revised to better achieve the Bureau’s statutory objectives; to minimize burdens, impacts, or costs on parties subject to these proceedings; to align the Bureau’s administrative adjudication Rules more closely with those of other agencies; and to better provide fair and efficient process to individuals and entities involved in the adjudication process, including ensuring that they have a full and fair opportunity to present evidence and arguments relevant to the proceeding. (83 F.R. 5055-56, Feb. 5, 2018)

The Bureau requests that comments include, first and foremost, “Specific discussion of the positive and negative aspects of the Bureau’s administrative adjudication processes, including whether a policy of proceeding in Federal court in all instances would be preferable.” (83 F.R. 5056)

This Request for Information is the second of a series. The first RFI addressed Civil Investigative Demands and Associated Processes. I will blog about the third one, the Request for Information Regarding Bureau Enforcement Processes, at a later date.

Mulvaney appears to be using these RFIs to provide the consumer financial services industry with an opportunity to provide broad direction to the Bureau as to what changes they would like to see, now that pro-consumer Director Cordray has stepped down. This would be consistent with this RFI’s focus on minimizing “burdens, impacts, or costs on parties subject to these proceedings . . .”

Comments are due April 6, 2018 so get crackin’.

Monday’s Adjudication Roundup

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Whitman on Servicer Lies

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Professor Dale Whitman posted a commentary on Quintana v. Bank of America, No. CV 11–2301–PHX, 2014 WL 690906 (D.Ariz. Feb. 24, 2014) (not reported in F.Supp.2d) on the Dirt listserv:

Synopsis: A borrowers who is “jerked around” by a mortgage servicer may have claims in fraud or on other theories.

Karoly Quintana’s home mortgage loan was serviced by Bank of America, When she began having difficulty making her payments in 2009, she was told by B of A that she would have to miss three payments to be considered for a loan modification, and that the servicer would forbear foreclosure while it did so. She missed the payments and applied for a modification, but (she alleged) B of A did not consider it, and instead accelerated her loan and commenced foreclosure.

Quintana filed a suit in federal court to stop the foreclosure. In March 2012 the suit was dismissed voluntarily on the assurance that B of A would again consider a loan modification, but again it did not do so. (Oddly, B of A’s counsel conceded these facts.)

The court held that the allegations of both the 2009 and 2012 conduct of B of A stated claims of fraud, sufficient to withstand a motion to dismiss. The statements that she would be considered for a modification were false, she relied upon them, and was damaged. Her damages were the expenditure of additional attorney’s fees, and the court found this sufficient, even though in general attorneys’ fees are not recoverable in a fraud action.

The court also held that the plaintiff’s count for breach of the implied covenant of good faith and fair dealing survived a motion to dismiss. While the loan documents did not require the servicer to consider the mortgage modification or to forbear foreclosure, when it promised to do so and then did not, it breached the implied covenant. The promise was only oral, and B of A asserted it was inadmissible under the Statute of Frauds, but the court found that Quintana’s detrimental reliance (in missing the payments) provided a basis for promissory estoppel, overcoming the Statute of Frauds defense.

However, the court dismissed Quintana’s claim under the Arizona Consumer Fraud Act (on the ground that it was barred by the 1-year statute of limitations). There’s a convoluted argument about whether B of A can be liable under the FDCPA, but the court ultimately refused to dismiss that claim.

Comment: Borrowers have often tried to claim that they should have received loan modifications, but have not in fact received them. In general, of course, there’s no legal right to a modification. But this court holds that a false promise to consider a modification is enough to make out a claim of fraud.