Federal Trade Commission and Consumer Financial Protection Bureau v. Green Tree Servicing LLC: Consumer Financial Protection Bureau Refers to “Substantiation” for the First Time; Federal Trade Commission and Consumer Financial Protection Bureau File First Joint Order

Sullivan & Cromwell LLP - April 24, 2015

On April 21, 2015, in the most recent in a series of enforcement actions aimed at mortgage servicing-related misconduct, the Consumer Financial Protection Bureau (the “CFPB”) and the Federal Trade Commission (the “FTC” and, together with the CFPB, the “Agencies”) announced a joint action against Green Tree Servicing LLC (“Green Tree”). In their complaint (the “Complaint”) and proposed joint order (the “Joint Order” and, together with the Complaint, the “Green Tree Action”), the Agencies allege that Green Tree engaged in a number of unfair or deceptive acts or practices in violation of the Federal Trade Commission Act (the “FTC Act”), and the Consumer Financial Protection Act (the “CFP Act”), as well as conduct that violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act. Specifically, the Agencies allege that Green Tree failed to honor modifications for loans transferred from other servicers and engaged in other misconduct with respect to delinquent borrowers.

To resolve the Green Tree Action, Green Tree agreed to pay $48 million to consumers and an additional $15 million penalty to the CFPB.  Green Tree also agreed to correct the practices that were the subject of the Complaint and the Joint Order and to establish and maintain a “comprehensive data integrity program” designed to ensure the “accuracy, integrity and completeness of the data and other information” with respect to accounts for which Green Tree performs servicing functions.

The Green Tree Action is notable for two reasons. First, it appears to be the first action in which the CFPB has proceeded under the FTC’s long-standing “substantiation doctrine”, which requires advertisers (or, in this case, consumer debt servicers) to have “substantiation" for a claim (express or implied) made to a consumer at the time the claim is made, in order for the claim to not be “deceptive”. Second, the Green Tree Action appears to be the first joint action by the CFPB and the FTC, marking what could be an important development in the relationship between the Agencies, which have separate authority to pursue unfair or deceptive acts or practices.  The Green Tree Action also confirms that the Agencies remain focused on abusive practices by mortgage servicers.