Today, the CFPB filed proposed consent orders against two credit card add-on product vendors for allegedly billing consumers for credit monitoring and identity theft protection services they did not receive. Under the proposed consent orders, one vendor will provide nearly $7 million in restitution to the holders of approximately 73,000 accounts, and pay a $1.9 million civil money penalty. The other vendor will provide almost $55,000 in restitution to consumers who were incorrectly billed for identity theft or credit monitoring services, and pay a $1.2 million civil money penalty. The Bureau specifically noted that today’s announcement is the “first time the Bureau has brought actions directly against the companies” that market or administer ancillary products.
Maryland Court of Appeals Rules Borrowers Barred By Three-Year Statute of Limitations in HELOC Decision
On June 23, The Court of Appeals of Maryland reversed the judgment of the Court of Special Appeals in Windesheim v. Larocca, 2015 WL 3853500 (MD. 2015), holding that the statute of limitations for a mortgage origination fraud case began to run at origination because the borrowers had inquiry notice of the loan terms. Under the alleged “buy-first-sell-later” scheme, the borrower-plaintiffs contend that the realtor and lender-defendants encouraged the borrowers to open home equity lines of credit (HELOCs) on their current homes while simultaneously selling their current homes. The lenders allegedly forged documents and signatures in order to approve both the HELOCs and the mortgages on new homes. The trial court initially found that the claims were time-barred, as the plaintiffs should have discovered the alleged fraud when the loans were originated. On appeal to the Court of Special Appeals, Maryland’s intermediate appellate court, the plaintiffs succeeded in reversing the decision of the trial court. The defendants then filed their own appeal, and the Court of Appeals sided with the trial court in holding that the three-year statute of limitations had run. In particular, the Court of Appeals held that the borrowers had inquiry notice at origination because they signed the loan applications and thus were “presumed to have read and understood their contents.” Furthermore, the statute of limitations was not tolled by Maryland law or the fiduciary rule “because there is neither evidence that the Petitioners encouraged Borrowers not to read the Applications nor evidence that the Borrowers and Petitioners were in a fiduciary relationship.” The Court of Appeals further held that the defendants neither engaged in nor conspired to engage in false or misleading indirect advertising regarding secondary mortgage loans.
On June 22, the federal banking agencies issued a joint final rule that modifies the mandatory purchase of flood insurance regulations to implement some provisions of the Biggert-Waters and Homeowner Flood Insurance Affordability Acts. Notable highlights include that the final rule, among other things: (i) expands escrow requirements for lenders who do not qualify for a small lender exception, (ii) clarifies the detached structure exemption, (iii) introduces new and revised sample notice forms and clauses relating to the escrow requirement and the availability of private flood insurance, and (iv) clarifies the circumstances under which lenders and servicers may charge borrowers for lender-placed flood insurance coverage. The escrow provisions and sample notice forms will become effective on January 1, 2016, and all other provisions will become effective October 1, 2015. The agencies reminded that the escrow provisions in effect on July 5, 2012, the day before Biggert-Waters was enacted, will remain in effect and be enforced through December 31, 2015.
The agencies also indicated that they plan to address Biggert-Waters’ private flood insurance provisions through a separate rulemaking.
OCC Releases Semiannual Report Highlighting Key Risks Facing National Banks and Federal Savings Associations
Today, the OCC announced the release of its semiannual report, Semiannual Risk Perspective for Spring 2015, highlighting key risk areas affecting national banks and federal savings associations. Based on 2014 year-end data, the report identifies issues that pose a potential threat to the safety and soundness of banks and thrifts. It also sets forth the OCC’s supervisory priorities for the next 12 months, including, among others, (i) cybersecurity awareness and preventative controls, (ii) Bank Secrecy Act/Anti-Money Laundering compliance, (iii) fair access to credit, and (iv) underwriting practices, particularly with respect to leveraged loans, indirect auto lending, HELOCs, and credit related to the oil and gas sector. The report also notes declining revenues and profitability overall in OCC-supervised institutions.
On June 29, the FTC filed two administrative complaints and issued proposed orders against two Las Vegas auto dealers to resolve allegations that they engaged in misleading advertising practices that misrepresented the purchase price or leasing offers of their vehicles, as well as the amount actually due at signing. In addition, the FTC also contends that the auto dealers failed to disclose other key information in its advertisements, such as the need for a security deposit, whether a down payment was required, and the terms of repayment. Under the proposed consent orders, the FTC will require both dealerships to refrain from misrepresenting the actual cost to purchase or lease a vehicle, and to comply with requirements of the Consumer Leasing Act and the Truth in Lending Act. No monetary judgment is proposed for either auto dealership.
On June 25, the Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. held that disparate-impact claims are cognizable under the Fair Housing Act (FHA). The Court, in a 5-4 decision, concluded that the FHA permits disparate-impact claims based on its interpretation of the FHA’s language, the amendment history of the FHA, and the purpose of the FHA.
Applicability to ECOA
When certiorari was granted in Inclusive Communities, senior officials from the CFPB and DOJ made clear that they would continue to enforce the disparate impact theory under the Equal Credit Opportunity Act (ECOA) even if the Supreme Court held that disparate-impact claims were not cognizable under the FHA. It is reasonable to expect that the Court’s decision will embolden the agencies, as well as private litigants, to assert even more aggressively the disparate impact theory under ECOA. Read more…
Special Alert: Supreme Court Upholds Disparate Impact Under Fair Housing Act, But Emphasizes Limits on Such Claims
Today, the Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. held that disparate-impact claims are cognizable under the Fair Housing Act (FHA). In a 5-4 decision, the Court concluded that the use of the phrase “otherwise make available” in Section 804 of the Fair Housing Act supports disparate-impact claims. The Court also held that Section 805 of the Fair Housing Act (which applies to lending) permits disparate impact, reasoning that the Court “has construed statutory language similar to § 805(a) to include disparate-impact liability.” The Court also wrote that the 1988 amendments to the Fair Housing Act support its conclusion because (1) all the federal Courts of Appeals to have considered the issue at that time had held that the FHA permits disparate-impact claims; and (2) the substance of the amendments, which the Court characterized as exceptions from disparate impact, “is convincing support for the conclusion that Congress accepted and ratified the unanimous holdings of the Courts of Appeals finding disparate-impact liability.”
The Court emphasized, however, that “disparate-impact liability has always been properly limited in key respects . . . .” Specifically, the Court explained disparate-impact liability must be limited so companies “are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system.” “Entrepreneurs must be given latitude to consider market factors,” the Court explained. The Court clarified further that a variety of factors, including both “objective” and “subjective” factors, are “legitimate concerns.” Read more…
Today, the CFPB expanded its consumer complaint database, publishing for the first time over 7,700 consumer narratives which provide descriptive details of issues consumers face with respect to mortgages, bank accounts, credit cards, and debt collection, among other topics. As previously covered in InfoBytes, the Bureau finalized its Policy earlier this year requiring consumers who file complaints to “opt-in” to have the actual narrative of the complaint disclosed in the CFPB consumer complaint database. In addition, the Bureau issued a Request For Information seeking feedback on how complaint information contained within the database can be more easily identified and “normalized.” The Bureau also announced that it had received more than 627,000 complaints as of June 1, with mortgages and debt collection among the most frequent sources of complaints.
The CFPB issued a proposed rule today to delay the effective date of the TILA-RESPA Integrated Disclosure (“TRID”) rule, including all amendments, from August 1 to October 3, 2015. The proposed delayed effective date is two days later than the date announced last week so that the effective date falls on a Saturday. The CFPB chose Saturday because it “may allow for smoother implementation by affording industry time over the weekend to launch new systems configurations and to test systems. A Saturday launch is also consistent with existing industry plans tied to the Saturday August 1 effective date.”
The proposed rule explains that, due to “an administrative error on the Bureau’s part in complying with the [Congressional Review Act]…, the [TRID] Rule cannot take effect until at the earliest August 15, 2015.” Because “some delay in the effective date is now required, the Bureau believes that a brief additional delay may benefit both consumers and industry more than would allowing the new rules to take effect on [August 15].” The Bureau stated that the additional delay is being proposed to avoid challenges associated with a mid-month effective date and to allow more time to implement the rule in light of recent information the CFPB received that “delays in the delivery of system updates have left creditors and others with limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner.”
The proposed rule does not include any substantive changes to the TRID rule, other than changes to reflect the new proposed effective date. Despite requests by many in industry, the Bureau did not propose to allow lenders to begin complying with the rule before the effective date.
Comments must be received on or before July 7, 2015.
For additional information and resources on the TRID rule, please visit our TRID Resource Center.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Benjamin K. Olson, (202) 349-7924
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Joseph J. Reilly, (202) 349-7965
- Melissa Klimkiewicz, (202) 349-8098
- Jonathan W. Cannon, (310) 424-3903
- Brandy A. Hood, (202) 461-2911
On June 23, the CFPB published its eighth edition of Supervisory Highlights, covering supervisory activities from January 2015 through April 2015. The latest edition identifies issues with dual-tracking at mortgage servicers and the need for improved quality control measures at consumer reporting agencies. The report also provided supervisory observations related to debt collection, student loan servicing, mortgage origination and servicing, and fair lending. Notably, the report reveals that non-public supervisory actions and self-reported violations at banks and nonbanks in the areas of mortgage origination, fair lending, mortgage servicing, deposits, payday lending, and debt collection resulted in $11.6 million in remediation to more than 80,000 consumers during the first four months of 2015.
On June 18, the CFPB announced an enforcement action against a third-party medical debt collection company for allegedly failing to issue debt validation notices to customers, mishandling consumer credit reporting disputes, and preventing customers from exercising certain debt collection rights. According to the Bureau, from 2011 through 2013, the company failed to properly investigate consumers’ complaints with respect to information furnished to credit reporting agencies, and lacked internal policies and procedures on how to handle and respond to the complaints, resulting in a violation of the Fair Credit Reporting Act (FCRA). In addition, the Bureau contends that the company did not properly inform consumers of the amount of medical debt owed before commencing efforts to obtain payment on the debt, subsequently violating the Fair Debt Collection Practices Act (FDCPA). The CFPB ordered the medical debt collector to, among other things, (i) provide over $5 million in restitution to affected consumers, (ii) correct errors in consumer credit reports, (iii) pay a $500,000 civil money penalty, and (iv) improve its business practices.
On June 17, the U.S. House Appropriations Committee approved an amendment that would require the CFPB to conduct a peer-reviewed cost-benefit analysis of the use of arbitration agreements prior to issuing a final rule. The amendment is tied to a fiscal year 2016 financial services spending bill, which would bring the Bureau under the congressional appropriations process. U.S. House Representatives Steve Womack (R-AR) and Tom Graves (R-GA) brought forth the amendment, which was adopted by the Committee on a voice vote.
FHA Announces Updated Defect Taxonomy to Clarify its Plan for Classifying Loan Defects Found in its Single-Family Loan Portfolio
On June 18, the FHA released its Single-Family Housing Loan Quality Assessment Methodology (“Defect Taxonomy”), a framework outlining the agency’s plans to identify and capture information related to loan defects found in Single-Family FHA endorsed loans. The new framework is intended to increase the efficacy of FHA’s Quality Assurance efforts and focuses on three core concepts – (i) identifying defects, (ii) capturing the sources and causes of defects, and (iii) assessing the severity of defects. Once implemented, the Defect Taxonomy will reduce the number of codes that the FHA uses to describe loan defects from 99 to nine. Additionally, the Defect Taxonomy will implement “Basis of Ratings Codes” that will capture both the sources and causes of defects. Finally, the Defect Taxonomy will refine FHA’s process for communicating the severity of defects by subdividing its current categories of “Unacceptable” and “Deficient” findings into four tiers of findings that will describe defects in greater detail. The FHA anticipates that these changes will provide greater transparency to lenders so that they can mitigate their credit risk when originating FHA loans. FHA further hopes that the Defect Taxonomy will help FHA monitor for deficiency trends and enhance its program policies. In its announcement, FHA warns that the Defect Taxonomy “is not a comprehensive statement on all compliance monitoring or enforcement efforts by FHA or the Federal Government and does not establish standards for administrative or civil enforcement action….” FHA also maintains that the Defect Taxonomy does not address how FHA will respond (i) to findings of patterns and practices of loan-level defects in FHA originations or (ii) to findings of fraud or misrepresentation in connection with any FHA-insured loan. FHA has yet to set a date for the Defect Taxonomy to take effect.
New York AG Announces Nearly $14 Million Agreement with Local Auto Dealers Over Deceptive Sales Practices, Plans to Sue an Additional 11 Auto Dealerships
On June 17, New York Attorney General Eric Schneiderman announced an approximate $14 million agreement with three jointly-owned auto dealers in connection with the alleged unlawful sale of add-on products, such as credit repair and identity-theft prevention services. According to the AG, the auto dealers failed to disclose the costs and fees of many “after-sale” items to consumers, in some instances resulting in the addition of $2,000 to the purchase or leasing price of a vehicle. Furthermore, the AG contends that the dealers concealed that they were charging consumers for the add-on services, or misrepresented that the services were free of charge. Under the terms of the settlement agreement, the auto dealers must, among other things, (i) pay more than $13.5 million in restitution to affected consumers and (ii) pay $325,000 in penalties, fees, and costs to New York State. In addition to the settlement announcement, AG Schneiderman made public that his office has served notices of intent to file suits against an additional eleven dealerships for allegedly engaging in similar practices.
Nevada Assembly Passes Legislation Relating to Mortgage Lending and Servicing Regulation, Licensing and Fees
On June 9, Governor Brian Sandoval (R-NV) signed into law AB 480, which revises existing law concerning the licensing and regulation of escrow agents and escrow agencies. The law also authorizes a wholesale lender from outside the state to operate in Nevada as a mortgage broker or mortgage banker, and increase fees related to those roles. Further, the bill requires the Commissioner of Mortgage Lending to prescribe by regulation the requirements for licensing, regulation and discipline of mortgage servicers. Specific sections of the bill – 101.3, 101.7, and 103 – are effective immediately, while others become effective January 1, 2016.