Mortgage

Impending tenant disaster is one other check of the authority of the CFPB

The Consumer Financial Protection Bureau, now with a new director, is poised to target mortgage servicers who are not doing the right thing on homeowners in dire straits. But it also keeps an eye on landlords who abuse tenants.

Just as the agency is concerned about what will happen to borrowers when its pandemic aid ends, the CFPB is focused on an emerging crisis for low-income renters following a nationwide eviction moratorium.

Although the office's power to prosecute landlords is controversial, observers believe the agency may attempt certain enforcement tactics, such as investigating tenant abuse by debt collection agencies or asset managers with housing management portfolios.

"The CFPB, like so many other federal agencies, is clearly very concerned about this eviction crisis and is trying to use whatever tools it has at its disposal to address it," said Chi Chi Wu, a member of the National Consumer Law Center.

Year-round, the CFPB warns financial firms of the need to help ailing consumers during the pandemic. In particular, the office has warned landlords of various risks that tenants may incur from an eviction and the reporting of inaccurate tenant information to credit bureaus.

Reducing evictions and averting foreclosures are high on Director Rohit Chopra's agenda as affordable housing is an important part of the Biden government's $ 3.5 trillion social agenda.

But how the CFPB responds to evictions is likely to reinvigorate debate over the limits of the bureau's authority and Chopra's willingness to transcend those limits, experts say.

While Chopra has not yet set out his specific priorities, he highlighted the response to the pandemic in an inaugural message to employees this week.

The eviction moratoria enacted by the federal and state governments last year should help to alleviate the economic effects of the pandemic on tenants. In many areas, the eviction rate was below the historical average due to the eviction stop.

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"This is an extremely fragile moment for our economy and our country," wrote Chopra. “We have seen an uneven recovery as many families and businesses continue to feel left behind. COVID-19 has also brought more focus to the longstanding systemic and structural barriers that we need to overcome in order to build a more inclusive economy. "

Some think Chopra's message signaled that the CFPB will look at consumer financial stability in all markets in general. The CFPB is a member of the Financial Stability Oversight Council, and Chopra said it intends to play a key role in managing big risks.

"Our agency plays an essential role within the Federal Reserve System in keeping households financially stable," wrote Chopra. "We have to anticipate emerging risks so that we can act before a crisis instead of acting after it's too late."

Large landlords in particular are concerned about the potentially bad press and fines that could result from a CFPB investigation. Most landlords are mom-and-pop investors who own less than 10 properties. Large asset managers like New York-based Blackstone Inc., one of the largest landlords in the United States, own less than 2% of single-family homes, said Rick Sharga, executive vice president at RealtyTrac.

"Is the CFPB planning to 'regulate' hundreds of thousands of individual investors?" Asked Sharga. "The CFPB approach is new, but I see an argument for it: Landlords are practically becoming the mortgage service providers in the rental industry."

The eviction moratoria enacted by the federal and state governments last year should help to alleviate the economic effects of the pandemic on tenants. In many areas, the eviction rate was below the historical average due to the eviction stop.

Following a congressional freeze in July 2020, the Centers for Disease Control and Prevention announced successive moratoriums. However, the federal eviction ended in August 2021 after the Supreme Court ruled that the CDC exceeded its powers.

"When these programs end, tenants and their families may be at increased risk," the CFPB said in a September report warning of the effects of the safety net leak.

While the CFPB has authority over mortgage service providers and debt collection agencies, some experts question whether it has jurisdiction over landlords. The Consumer Financial Protection Act applies to businesses that sell financial products and services, and rent is typically not included in that mix.

It's more likely that the CFPB would take action by partnering with the Federal Trade Commission or states to enforce consumer protection.

"The restriction on financial products or services applies only to the CFPB, it does not apply to the FTC, and it does not apply to states in general," said Eric Sirota, director of housing justice at the Shriver Center on Poverty Law.

In April the office issued an enforcement bulletin indirectly affecting landlords. It defined lawyers acting on behalf of landlords in eviction proceedings as debt collection agencies, subject to the federal law on debt collection practice.

"The office needs to find a way to bring jurisdiction to landlords who are generally not expected to be under the jurisdiction of the CFPB," said Jeff Naimon, partner at Buckley LLP.

The CFPB is also expected to use its extensive authority to punish companies for "unfair, misleading or abusive acts or practices". Some lawyers have warned landlords that misleading or unlawful rental terms, demands or threats for rent payments, and failure to maintain a property could be viewed as violations of the UDAAP.

Still, a sizeable minority of states have interpreted UDAAP as not applying to tenants, Sirota said. He believes that tenants would benefit from more attention from consumer protection authorities.

"I find it encouraging that the CFPB is ready to expand its tenant support efforts," said Sirota. "Tenants are currently in an incredibly vulnerable position and are prone to a lot of damage and consumer abuse."

Consumer advocates, meanwhile, expect the CFPB to target tenant screening companies that violate the Fair Credit Reporting Act when they provide inaccurate information in background reports that property managers buy to screen tenants for apartments.

Collection agencies are often involved in both evictions and post-tenant debt tracking, Wu said, and inaccurate information about debt could also be reported to credit bureaus and appear in tenant verification reports.

"These background and tenant verification agencies are very problematic," said Wu. "They will regularly tag people with the wrong criminal record, especially if that person has a common name, and that prevents people from getting a place to stay."

Chopra spoke out on the matter this week in an amicus letter the CFPB filed on a case in the U.S. Fourth District Court of Appeals in which a consumer helpdesk alleged it was not deemed to be false, incorrect, or misleading under the FCRA Consumer information in public records. The records, even if inaccurate, are used for background checks and disseminated in tenant verification reports.

"This case underscores a dangerous argument that could be used by market participants to circumvent laws that are specifically designed to cover them," Chopra said in a joint statement with FTC chairman Lina M. Khan. "Such a perspective would lead to a cascade of damaging consequences throughout the economy."

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