SCRA Compliance, Cybersecurity, and Responsible Innovation Remain Top Priorities at OCC

On August 31, Grovetta Gardineer, the OCC’s Deputy Comptroller for Compliance Operations and Policy, delivered remarks at the Association of Military Bankers of America annual workshop in Leesburg, VA. Throughout her presentation, Gardineer highlighted issues affecting financial institutions focused primarily on lending to servicemembers. Gardineer discussed the OCC’s ongoing efforts to identify and correct deficiencies within bank and thrift compliance practices and noted improved Servicemembers Civil Relief Act (“SCRA”) compliance by regulated institutions. Specifically, Gardineer observed that in 2014, the OCC cited sixty-five SCRA violations among large, midsized, and community institutions. For the first quarter of 2015, however, Gardineer reported that OCC examiners cited only seven SCRA violations. Gardineer also referenced recent amendments to the Military Lending Act (“MLA”) which expanded consumer protections to both open-end and closed-end consumer credit for servicemembers; she emphasized that banks should be proactive in updating their internal policies and procedures to reflect the MLA’s changes. Reiterating the OCC’s commitment to cybersecurity, Gardineer advised that OCC examiners intend to use the cybersecurity assessment tool “to supplement exam work to gain a more complete understanding of an institution’s inherent risk, risk management practices, and controls related to cybersecurity.” Finally, Gardineer discussed innovation within the industry, such as the emergence of various mobile payments transfer systems and peer-to-peer lending. She stressed that the OCC intends to facilitate a responsible regulatory environment that will encourage innovative financial products and services while also implementing regulations to ensure adequate consumer protections.

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BuckleySandler Secures Major Victory on Behalf of Mortgage Servicer in Putative Class Action Suit

On August 25, BuckleySandler secured a substantial victory in a putative class action in the Northern District of Illinois. McGann v. PNC, No. 11-c-6894 (N.D. Ill. Aug. 25, 2015). The suit alleged that a major mortgage servicer failed to convert Home Affordable Modification Program (HAMP) Trial Period Plans (TPPs) into permanent modifications. The Seventh Circuit Court of Appeals, with jurisdiction over the Northern District of Illinois, has allowed similar claims to survive dismissal. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012). And the Ninth Circuit has allowed such claims to go forward on a classwide basis. See Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013).

Despite this potentially adverse precedent relevant to the pleadings stage, BuckleySandler secured summary judgment in its client’s favor following extensive discovery by extracting key admissions from Plaintiff. These admissions established that the servicer “repeatedly told her either that her application was being reviewed or that it had been rejected but would be reinstated. A promise to review or even to reinstate an application is not a promise that the application will result in a permanent loan modification . . . she still had to meet HAMP’s requirements. That was clear from the TPP agreement itself.” Opinion at 9. The Court further held that even if these statements led Plaintiff to a subjective belief that the loan would be modified, Plaintiff could not show any actions she took in reliance, nor that any reliance would be reasonable. Opinion at 11.

Finally, the Court also held that the servicer did not engage in any unfair conduct under Illinois’ UDAAP statute, the Illinois Consumer Fraud and Deceptive Business Practices Act. The plaintiff in the matter was not a borrower on the note, but rather a non-borrower mortgagor, for whom HAMP was not available during the time in question. The Court agreed the servicer complied with HAMP guidelines in denying the permanent modification. Opinion at 16-17. And the Court went on to hold that the servicer was entitled to summary judgment for the additional reason that the evidence in discovery established that the cause of the plaintiff’s injuries was her non-qualification for HAMP, her inability to pay the mortgage, and the resulting foreclosure of the home, none of which was proximately caused by any wrongful conduct of the servicer. Opinion at 15-16.

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CFPB Spotlights Credit Reporting Industry in Latest Complaints Report

On August 25, the CFPB released the second of its monthly complaint reports, highlighting complaints received from consumers regarding the credit reporting industry. In its latest snapshot report, the CFPB revealed a 56 percent increase in the number of credit reporting complaints submitted by consumers between June 2015 and July 2015, and a 45 percent increase in credit reporting complaints from last year. The report also stated that 77 percent of credit reporting complaints involved inaccurate information on consumers’ credit reports. Despite the large volume of data used to prepare the report, the Bureau cautioned that the data is not normalized and that company-specific information should be considered in context of a company’s size.

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Fannie Mae Announces New Mortgage Product for Low- and Moderate-Income Borrowers

On August 25, Fannie Mae announced that it will begin offering HomeReady, a mortgage loan product featuring new flexibilities for lower to moderate income borrowers. For the first time, income from a non-borrower household member can be considered as a means to qualify for a Fannie loan. In addition, borrowers can include funds received from other sources, such as income from non-occupant parents or rental income from a basement apartment, to satisfy income requirements. Both first-time and repeat homebuyers can qualify for a HomeReady mortgage with a down payment as low as 3 percent. The new product requires borrowers to complete an online housing-counseling course. Fannie Mae is expecting to begin accepting deliveries under the HomeReady guidelines towards the end of 2015, and will soon issue additional details to assist lenders through a Selling Guide announcement.

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CFPB & NYDFS File Suit Against Two Pension Advance Lenders Over Misleading Consumers Related to Costs, Risks Associated to Advance Payments

On August 20, the CFPB, along with the New York Department of Financial Services (NYDFS), filed a joint complaint in federal court against two pension advance lenders and three of their managers for allegedly misleading consumers regarding the costs and risks associated with the companies’ pension advance loans. The CFPB and NYDFS contend that both companies coerced consumers into borrowing against their pensions by marketing the product as a sale rather than a loan, and misrepresented or failed to disclose interest rates and fees on lump-sum cash advances offered for agreeing to redirect the full or partial amount of the consumer’s pension payments over an extended period. In separate allegations, the NYDFS contends that both companies violated New York state specific laws related to usury and deception, and unlawfully transmitted money without a proper license. The complaint follows guidance issued earlier this year highlighting three business practices consumers should avoid when conducting business with pension advance lenders.

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United States District Court: Mortgagor Lacks Standing to Bring RESPA Claim

On August 11, the U.S. District Court for the District of New Hampshire rejected the addition of a potential RESPA claim to plaintiff’s complaint due to lack of standing, and the court dismissed the remaining counts for failure to state a claim. Sharp v. Deutsche Bank National Trust Company, As Trustee For Morgan Stanley ABS Capital Inc. Trust 2006-HE3, No. 14-cv-369 (D.N.H. Aug. 11, 2015). Although plaintiff and his father were both mortgagors on the mortgage document, the promissory note identified plaintiff’s father as the sole borrower for the loan. After plaintiff’s father died and plaintiff defaulted on the mortgage, plaintiff sought to enjoin the bank’s subsequent foreclosure proceedings. Plaintiff moved to amend his complaint to add a RESPA claim based on the bank’s allegedly inadequate responses to his requests for information pursuant to 12 C.F.R. § 1024.35 and 12 C.F.R. § 1024.36. The court determined that plaintiff lacked standing to assert his RESPA claim because the RESPA provisions at issue only applied to borrowers, not mortgagors like plaintiff. The court also rejected plaintiff’s argument that his status as the successor-in-interest to his father under 12 C.F.R. § 1024.38 established standing to bring the RESPA claim. The court confirmed that plaintiff was protected by 12 C.F.R. § 1024.38, but the court relied on the CFPB’s official interpretation of 12 C.F.R. § 1024.38 to determine that no private right of action existed to enforce the rule.  Read more…

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Department of Treasury Extends Comment Period on Expanding Access to Credit Through Online Marketplace Lending

On August 18, the Department of Treasury extended the comment period for the public to respond to its Request for Information (RFI) on online marketplace lending, entitled Public Input on Expanding Access to Credit Through Online Marketplace Lending. Originally published on July 20, the RFI seeks public input on three areas relating to the online marketplace industry: (i) business models of and products offered to consumers and small businesses; (ii) potential expansion of access to credit to the historically underserved; and (iii) the ways in which the financial regulatory framework can develop to support safe growth within the industry. Since the July 20 publication of the RFI, only four (4) comments have been received. Earlier this month, Treasury held a public forum to discuss online marketplace lending, with roughly 80 participants from the marketplace lending industry, consumer advocates, nonprofit public policy organizations, and the financial services industry. Per the August 18 extension, the public will now have until September 30 to provide comments on the RFI.

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CFPB Orders Subsidiary of Peer-to Peer Lending Company to Provide $700,000 in Restitution over Practices Related to its Health Care Loan Product

On August 19, the CFPB announced a consent order against a subsidiary of an online lending company, ordering the subsidiary to provide $700,000 in monetary relief to affected consumers. According to the CFPB, the subsidiary marketed two loan products at dental offices as part of its health-care services financing program – an installment loan and a deferred-interest loan – to assist consumers in paying for dental services. The CFPB contended that consumers were provided inaccurate information related to the terms and conditions of the deferred-interest loan product, finding that, in certain instances, the loan product was marketed as a “no-interest” loan. However, the dental service providers who marketed the loan product failed to note that the 22.98 percent interest rate would be added to the principal if consumers failed to pay the loan in full before the end of the promotional period.

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CFPB’s Office of Older Americans Releases Virginia Guides Designed for Financial Caregivers

On August 17, the CFPB released Virginia state-specific Managing Someone Else’s Money guides, which are designed to make it easier for financial caregivers to follow the state’s unique fiduciary laws and procedures. According to Director Cordray’s remarks, the four guides – (i) Agents under powers of attorney; (ii) Court-appointed guardians; (iii) Trustees; and (iv) Government fiduciaries – will provide fiduciaries with “tips and answers to everyday questions people may have about managing someone else’s bank account, applying for federal benefits, and sharing information with family members.” Additionally, the guides are intended to alert caregivers to potential scams and financial exploitation, while also providing ways to respond if a beneficiary is the victim of either. The CFPB plans to release similar guides for Arizona, Florida, Georgia, Illinois, and Oregon. Following the nationally-applicable 2013 Managing Someone Else’s Money guide, the release of these state-specific guides represents the second phase of the Bureau’s Office of Older Americans’ initiative to assist financial caregivers.

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FTC Commissioner Wright to Resign

On August 17, the FTC announced the resignation of Joshua D. Wright who served as one of the agency’s five commissioners since January 2013. Prior to being appointed as a Commissioner, Wright previously served at the FTC as an inaugural Scholar in Residence in the Bureau of Competition from 2007 to 2008. Wright’s term was set to expire in September 2019, but his resignation will become effective on August 24. Chairwoman Edith Ramirez noted that, “[t]he agency has benefited greatly from his perspective as a lawyer and economist.” Wright will return to his prior position as a professor at George Mason University School of Law.       

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Spotlight on the Military Lending Act, Part 2: Planning for Compliance

Andrew-Grant-captionManley-Williams-caption Ben-Olson-captionCompliance with the revised Department of Defense (“DoD”) regulations under the Military Lending Act (“MLA”) is not mandatory until October 3, 2016 or, for most credit cards, until October 3, 2017.  However, as the recent implementation of the Dodd-Frank Act mortgage regulations shows, a year or even two can pass quickly.  Therefore, institutions should begin planning now.  The following are answers to three key questions that can help you start the planning process.

  1. Which products will be covered by the revised MLA regulations?

The revised MLA regulations apply far beyond the narrow range of small dollar loan products covered today.  Instead, reflecting the DoD’s desire to match to the definition of consumer credit under the Truth in Lending Act’s Regulation Z, the MLA regulations will apply to credit offered or extended to a covered borrower that is:

  • Primarily for personal, family, or household purposes; and
  • Either subject to a finance charge or payable by a written agreement in more than four installments.

However, the following types of credit are excluded:

  • Residential mortgages: Transactions secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling.
  • Secured motor vehicle purchase loans: Transactions that are expressly intended to finance the purchase of a motor vehicle and are secured by that vehicle.
  • Secured personal property purchase loans: Transactions that are expressly intended to finance the purchase of personal property and are secured by that property.
  • TILA-exempt transactions: Transactions that are exempt from Regulation Z (other than pursuant to a State exemption under 12 CFR § 1026.29) or otherwise not subject to disclosure requirements under Regulation Z.

Accordingly, the revised MLA regulations should not affect most mortgage, auto, or commercial lending.  The new regulations will, however, apply to most credit card accounts, overdraft or personal lines of credit, unsecured closed-end loans, and deposit advance products.  Therefore, institutions should focus on preparing the lines of business responsible for these products for compliance with the revised MLA regulations. Read more…

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Illinois Governor Signs Reverse Mortgage Act

On August 10, Illinois Governor Bruce Rauner signed into law Senate Bill 1440, the Reverse Mortgage Act which provides new consumer protections for borrowers with respect to reverse mortgage loan transactions. Among other things, the legislation establishes a regulatory framework to govern reverse mortgage loan transactions made within the state including provisions that (i) require lenders to provide certain mortgage disclosures to potential borrowers; and (ii) implement a three-day “cooling off” period in which a potential borrower can rescind the loan. The Act also grants the Illinois Attorney General sole enforcement authority to pursue any violations of the Reverse Mortgage Act, which would constitute as an unlawful practice under the state’s Consumer Fraud and Deceptive Business Practices Act. The law becomes effective January 1, 2016.

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FTC Announces Action Against Data Brokers for Fraud Allegations, Settles with Three Defendants

On August 12, the FTC announced an action against a data broker enterprise for violations of the FTC Act. The FTC’s complaint alleges that, from at least 2011 to 2013, the data broker enterprise (i) sold payday loan applications to Ideal Financial Solutions and other non-lender third party companies for less than market value; and (ii) knew or had reason to know that Ideal Financial used the information to make unauthorized debits from consumers’ bank accounts. The complaint further alleges that the financial information of over 500,000 consumers was provided to Ideal Financial, which resulted in over $7.1 million of unauthorized debits to consumers’ accounts. Three of the defendants have agreed to settle the FTC’s allegations. The proposed settlement orders prohibit all three defendants from selling or otherwise benefitting from consumers’ personal information, and impose a $7.1 million judgment against two defendants and a $3.7 million judgment against the third. The settlement orders are subject to approval by the U.S. District Court for the District of Nevada.

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OCC Comptroller Talks Future of Financial Services, Eyes FinTech Industry

On August 7, OCC Comptroller Thomas Curry delivered remarks at the Federal Home Loan Bank of Chicago, which was hosting a conference highlighting the future of financial services. Specifically, Curry discussed innovation in the emerging financial technology industry, or “fintech,” noting the risks and benefits associated with mobile payments, virtual currency, and peer-to-peer lending products within the U.S. banking system. With respect to virtual currency, Curry stressed how important it is for financial institutions to implement adequate procedures to deter money laundering and terrorist financing. Curry also recognized that the OCC is “still early in the process” of evaluating a regulatory framework to examine some new and innovative products and services. Rounding out his remarks, Curry expressed his growing concerns with so called “neobanks,” which operate primarily online but provide similar services to brick and mortar retail branch banks, including the heightened privacy risks that neobanks present in light of recent cybersecurity attacks.

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CFPB Issues Guidance Reminding Servicers of Requirements for Cancellation and Termination of Private Mortgage Insurance

On August 4, the CFPB issued Compliance Bulletin 2015-03 to provide guidance to mortgage servicers on their compliance obligations related to the private mortgage insurance (PMI) cancellation and termination provisions under the Homeowners Protection Act (HPA). The bulletin summarizes HPA requirements regarding annual disclosures, PMI refunds, borrower-requested cancellation, automatic termination, and final termination of PMI. The bulletin also cautions servicers to implement investor guidelines in a manner that does not violate the HPA. In a statement released by the Bureau, CFPB Director Richard Cordray advised, “We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and [the Bureau’s] guidance should help servicers come into compliance with the [HPA].”

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