CFPB Releases Special Edition Supervisory Highlights with Focus on Mortgage Servicing

On June 22, the CFPB released its eleventh issue of Supervisory Highlights specifically to address recent supervisory examination observations of the mortgage servicing industry. According to the report, mortgage servicers continue to face compliance challenges, particularly in the areas of loss mitigation and servicing transfers. The report attributes compliance weaknesses to outdated and deficient servicing technology, as well as the lack of proper training, testing, and auditing of technology-driven processes. Notable findings outlined in the report include the following: (i) multiple violations related to servicing rules that require loss mitigation acknowledgment notices, observing deficiencies with timeliness and content of acknowledgement notices; (ii) violations regarding servicer loss mitigation offer letters and other related communications, including unreasonable delay in sending letters; (iii) failure to state the correct reason(s) in letters to borrowers for denying a trial or permanent loan modification option; (iv) failure to implement effective servicing policies, procedures, and requirements; and (v) heightened risks to consumers when transferring loans during the loss mitigation process. Although the report focuses largely on mortgage servicers’ continued violations, it acknowledged that certain servicers have significantly improved over the past several years by, in part, “enhancing and monitoring their servicing platforms, staff training, coding accuracy, auditing, and allowing for great flexibility in operations.”

In addition to outlining Supervision’s examination observations of the mortgage servicing industry, the report also notes that the CFPB’s Supervision and Examination Manual was recently updated to reflect regulatory changes, technical corrections, and updated examination priorities in the mortgage servicing chapter.

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CFPB Amends Annual Dollar Thresholds in TILA Regulations

On June 17, the CFPB announced that it adjusted dollar threshold amounts for provisions in Regulation Z, which implements TILA, under the CARD Act, HOEPA, and the Dodd-Frank Act. The CFPB is required to make adjustments based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2016. For 2017, the minimum interest charge will remain $27 for the first late payment and the subsequent violation penalty safe harbor fee for 2016 was amended to $38 for the remainder of 2016 and all of 2017. The CFPB is increasing the combined points and fees trigger-threshold for compliance with HOEPA to $1,029, and the amount threshold for high-cost mortgages in 2017 will be $20,579. To satisfy the underwriting requirements under the ATR/QM rule, a covered transaction will not be considered a QM unless the combined points and fees do not exceed 3% of the total loan amount for a loan greater than or equal to $102,894; $3,087 for a loan amount greater than or equal to $61,737 but less than $102,894; 5% of the total loan amount for a loan greater than or equal to $20,579 but less than $61,737; $1,029 for a loan amount greater than or equal to $12,862 but less than $20,579; and 8% of the total loan amount for a loan amount less than $12,862. The final rule is effective January 1, 2017, except that the amendment to the subsequent violation penalty safe harbor fee amount of $38 for the remainder of 2016 takes effect upon Federal Register publication.

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FSOC Publishes 2016 Annual Report, Highlights Marketplace Lending as Emerging Risk

On June 21, the Financial Stability Oversight Council (FSOC) released its 2016 annual report. The report reviews financial market and regulatory developments, identifies emerging risks, and offers recommendations to enhance the U.S. financial markets, promote market discipline, and maintain investor confidence. Among other things, the report focuses on threats and vulnerabilities related to cybersecuritry, marketplace lending, and distributed ledger systems/blockchain technology. Addressing the need for heightened cybersecurity, the report advises financial institutions to work together with government agencies to better understand risks associated with destructive malware attacks and to “improve cybersecurity, engage in information sharing efforts, and prepare to respond to, and recover from, a major incident.” Regarding marketplace lending, the report stresses that, as the industry continues to grow, “financial regulators will need to be attentive to signs of erosion in lending standards.” Finally, according to the report, distributed ledger systems pose operational vulnerabilities that “may not become apparent until they are deployed at scale,” and cautions that a “considerable degree of coordination among regulators may be required to effectively identify and address risks associated with distributed ledger systems.”

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FTC Bans Debt Collector from Debt Collection Business

On June 16, the FTC announced that it obtained a court order against a debt collector and one of its officers for allegedly deceiving consumers with text messages, emails, and phone calls that falsely threatened arrest or lawsuits if they failed to make debt collection payments. In May 2015, the District Court for the Northern District of Georgia issued an ex parte Temporary Restraining Order that “froze a number of Defendants’ assets, provided the FTC with immediate access to Defendants’ business premises, and granted expedited discovery to determine the existence and location of assets and documents pertinent to the allegations of the Complaint.” The recently issued final order prohibits the defendants from, among other things: (i) engaging in debt collection activities; (ii) misrepresenting material facts regarding financial-related products or services; and (iii) disclosing, using, or benefiting from consumers’ personal information, and failing to properly destroy such information when appropriate. Finally, the final order imposes a $980,000 judgment to be used as equitable monetary relief, including, but not limited to, consumer redress.

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Federal Reserve Issues Cease and Desist Order over Bank’s Deposit-Gathering Practice

On June 13, the Federal Reserve issued a cease and desist order to a California-based savings and loan holding company and its wholly-owned, Indiana-based federal savings bank subsidiary. According to the Federal Reserve, between January 8, 2008 and March 5, 2010, the federal savings bank operated a deposit-gathering program (Program) pursuant to which it placed customer funds into deposit accounts at unaffiliated banks (Participating Banks) that had different maturities and different interest rates than those selected by customers under the Program. The Federal Reserve contends that the bank’s deposit-gathering practice was unsafe and unsound, and that the bank “was subject to liquidity risk because customers may have demanded the return of many or all of their deposits before the maturity dates negotiated by [the bank] with the Participating Banks, and/or [the bank] obtained less in interest from deposits at Participating Banks than it owed to customers for the deposit accounts they had selected.” Pursuant to the Federal Reserve’s cease and desist order, the savings and loan holding company and the federal savings bank must: (i) receive written approval from, and (ii) submit a business plan to the Federal Reserve (or the appropriate federal banking agency) prior to engaging in any deposit-gathering program.

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