Consumer Crossroads: Where Financial Services and Litigation Intersect

On May 24, 2021, Chief Administrative Judge Lawrence Marks issued Administrative Order 159/21 (AO/159/21) to extend the stay of residential foreclosure actions through August 31, 2021, for cases in which the mortgagor submits a Hardship Declaration (the Declaration). AO/159/21 clarifies the uncertainty surrounding the deadline for submitting the Declaration, which was not addressed in the previous administrative order.

On May 5, 2021, the U.S. District Court for the District of Columbia struck down the Centers for Disease Control and Prevention's nationwide eviction moratorium. According to the court, the CDC exceeded the scope of its authority under the Public Health Services Act, 42 U.S.C. § 264(a) (PHSA) when it enacted the "Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19" (CDC Order). The decision could have wide-reaching ramifications and set a precedent for challenges to various eviction and foreclosure moratoriums across the country.

In its recent Special Edition of Supervisory Highlights on COVID-19 Prioritized Assessments, the Consumer Financial Protection Bureau (CFPB) summarized challenges and risks with respect to several industries it had informally examined since the start of the pandemic. Beginning in May 2020, the Bureau rescheduled about half of its planned examinations and instead conducted "prioritized assessments" in response to the pandemic. These assessments included seeking information on how institutions were responding and communicating with consumers, and also examining how institutions were confronting and adapting compliance in response to the pandemic.

On Monday, December 28, 2020, Governor Andrew Cuomo signed the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020. Among other things, this legislation (S.9114/A.11181) extends certain residential foreclosure and eviction moratoria for renters and homeowners suffering hardship due to the COVID-19 pandemic.

On July 24, 2020, the New York State Courts issued Administrative Order 157/20 (AO/157/20). Effective July 27, 2020, AO/157/20 removes the formal suspension of all residential foreclosures, but keeps a limited suspension of commercial foreclosures in place until August 19, 2020. Under this new directive, foreclosure actions can be resumed by courts first scheduling at least one conference. Those conferences are expected to be the same as the mandatory CPLR 3408 settlement conferences—even if settlement conferences were previously held—because the courts were directed to consider all aspects of the case, including "the effects, if any, that the COVID-19 pandemic has had upon the parties."

On June 17, 2020, New York Governor Andrew Cuomo signed Senate Bills 8243C and 8428 into law, adding Section 9-x to the Banking Law. The section creates new procedures for mortgagors and servicers in relation to forbearances of residential mortgage payments affected by the COVID-19 pandemic.

In support of re-opening and adapting New York to the new economic and social normal caused by COVID-19, New York's Department of Financial Services (DFS) announced the launch of a program called "DFS FastForward" which will support innovators who can deliver novel digital solutions that advance the state's recovery from the pandemic. The program builds on the successful launch in February of an InsurTech pilot program by DFS, and promises to "reduce barriers and speed up" the regulatory process for qualifying services and products.

The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, provides widespread economic relief for individuals and businesses adversely affected by the coronavirus outbreak and includes several key modifications and amendments to the U.S. Bankruptcy Code. We explore how these revisions will immediately impact the bankruptcy landscape for both individual debtors and small businesses below.

We previously reported on the impact of the CARES Act on federally backed mortgage loans, including the immediate availability of a 180 – 360 day forbearance plan for borrowers impacted by the pandemic. One key feature of this legislation and accompanying guidance publications is that servicers of GSE loans are required to evaluate borrowers for repayment options—including reinstatement, a repayment plan, modification, or some other workout—at the conclusion of the forbearance period. The forbearance plans do not offer loan forgiveness, and borrowers and their servicers are expected to resolve the forbearance amount at the end of the plan.

On May 7, 2020, New York Governor Andrew Cuomo issued Executive Order 202.28, which provides further temporary relief measures for tenants facing an eviction. The order also directly impacts mortgage loan holders, servicers, and borrowers, as it bars the "initiation" of certain residential and commercial mortgage foreclosures for another 60 days from June 20, 2020.

Yesterday, a federal court granted ACA International's request for a temporary restraining order of the Massachusetts Attorney General's emergency regulations prohibiting debt collection calls and enforcement actions during the COVID-19 pandemic.

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General issued a COVID-19 bulletin for homeowners that revealed the HUD has been monitoring what readily accessible information FHA mortgage servicers are providing to borrowers on their websites. The Federal Housing Administration (FHA) has already provided guidance to FHA servicers regarding implementation of the CARES Act as it pertains to provisions related to forbearance. However, HUD's Inspector General warned in the bulletin that its review of the top 30 FHA servicers' websites revealed "incomplete, inconsistent, dated, and unclear guidance" to borrowers in connection with their forbearance options under the CARES Act.

On May 1, 2020, U.S. District Court for the District of Massachusetts Judge Richard Stearns heard oral arguments in ACA International's suit to halt the emergency debt collection regulations enacted in Massachusetts, which included a request for a temporary restraining order. In response to ACA's said request, Stearns expressed particular interest in whether the regulations constitute an improper ban on commercial speech under the First Amendment, as well as AG Maura Healey's argument that the federal court does not have jurisdiction to strike down the regulations under the Eleventh Amendment.

We recently reported on Massachusetts Attorney General Maura Healey's implementation of temporary regulations halting collection of debt from Massachusetts' consumers in the wake of the COVID-19 crisis. With certain exemptions, the regulations declare the performance of many regular debt collection activities—including placing telephone calls to debtors or initiating collection actions—an unfair or deceptive practice under the Massachusetts Consumer Protection Act. The emergency regulations apply until June 25, 2020, or until the end of Massachusetts' state of emergency, if longer. Now, a leading industry group has sued the Attorney General to enjoin immediate enforcement and to strike down the regulations.

On April 20, 2020, Massachusetts Governor Charlie Baker signed H.4647 into law. The law establishes a moratorium on foreclosures and evictions for 120 days from the date of the enactment, or 45 days after the COVID-19 Emergency Order is lifted, whichever is sooner, and also extends forbearance to any borrower who requests it due to COVID-19. The law allows the Governor to expand the foreclosure moratorium for a further 90 days, so long as it does not exceed the 45 day limit after the COVID-19 Emergency Order is lifted.

From March 27 through June 25, 2020—or until the end of Massachusetts' state of emergency—Attorney General Maura Healey has implemented temporary regulations on the collection of debt from Massachusetts consumers, which supplements existing regulations codified at 940 CMR 7.00. Important exemptions apply, including attempts to collect a debt which is owing as a result of a loan secured by a mortgage on real property.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to the continuing threat posed by the coronavirus (COVID-19) pandemic. Among other provisions, the CARES Act amends the Fair Credit Reporting Act (FCRA) with the intent to stop adverse credit reporting during the period of national emergency related to the coronavirus crisis. Despite this, furnishers should be aware that their procedures for responding to consumer disputes during the crisis period should not be relaxed.

Despite concerns expressed by the business community, enforcement of the California Consumer Privacy Act (CCPA) will not be delayed as a result of the COVID-19 pandemic. California Attorney General Xavier Becerra recently clarified that his office "is committed to enforcing the law upon finalizing the rules or July 1, whichever comes first. … [W]e are all mindful of the new reality created by COVID-19 and the heightened value of protecting consumers' privacy online that comes with it. We encourage businesses to be particularly mindful of data security in this time of emergency."

To assist consumer financial services lenders, servicers and investors, Hinshaw has developed an interactive tracker of state regulations related to the COVID-19 pandemic. The tracker documents actions by various state regulators, along with the limits imposed by states on foreclosures, evictions, and debt collections, and allows users to click on any state to view applicable provisions. 

The COVID-19 outbreak has resulted in unprecedented job loss for millions of Americans, creating economic uncertainty and challenges for loan servicers in 2020. Until the outbreak is controlled, missed payments on mortgages and student loans are likely to increase. Already, the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA) have issued 60 day moratoriums on foreclosures and evictions, which some states—and most banks and mortgage loan servicers—have adopted. Meanwhile, the Department of Education has announced that all borrowers with federal loans will have their interest rates automatically set at 0% for at least 60 days. Late Wednesday night, the Senate passed H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) after senate leadership reached an agreement with the White House earlier in the week. The legislation now moves to the House of Representatives for what many hope is unanimous consent. While we are still waiting on the House of Representative's approval, we've explored measures within the bill that will immediately impact student and mortgage loan servicers and outlined them below.