Special Alert: CFPB Proposes Significant Expansion Of HMDA Reporting Requirements

On July 24, the Consumer Financial Protection Bureau (the CFPB or Bureau) issued a proposed rule that would expand the scope of the Home Mortgage Disclosure Act (HMDA) data reporting requirements and streamline certain existing reporting requirements. Although some of the new data points the Bureau is proposing to collect were expressly mandated by the Dodd-Frank Act, the Bureau also proposed a significant number of new data points based on discretionary rulemaking authority granted by the Act.

While we describe the proposal below in greater detail, highlights include:

  • The proposal would substantially expand the number of data points collected from financial institutions, including requiring reporting of rate spreads on all loans, not just high cost loans. At least initially, however, this additional information would not be provided to the public on the Loan Application Register (LAR). Instead, the proposal states that the Bureau is still examining privacy concerns related to this information.
  • The proposal would require financial institutions to report home equity lines of credit (HELOCs), reverse mortgages, and commercial loans secured by a dwelling.
  • The proposal does not provide clarification on the definition of an “application” or the “broker rule.”

Those wishing to comment on the proposal must do so by October 22, 2014. Click here to view the special alert.

LinkedInFacebookTwitterGoogle+Share

CFPB Proposes Rule To Implement Dodd-Frank HMDA Changes

On July 24, the CFPB issued a proposed rule to expand the scope of HMDA data reporting requirements. Section 1094 of the Dodd-Frank Act transferred responsibility for HMDA and Regulation C to the CFPB and directed the CFPB to conduct a rulemaking to expand the collection of mortgage origination data to include, among other things: (i) the length of the loan; (ii) total points and fees; (iii) the length of any teaser or introductory interest rates; (iv) the applicant or borrower’s age and credit score; and (v) the channel through which the application was made. The Dodd-Frank Act also granted the CFPB discretion to collect additional information as it sees fit. The proposed rule would implement all of the new data points required by the Dodd-Frank Act, and also would utilize the CFPB’s discretionary authority to substantially expand the number of new data points required to be reported. In addition, the CFPB’s proposal would require reporting for all dwelling-secured loans, which would include some loans not currently covered by Regulation C, including reverse mortgages, and all home equity lines of credit irrespective of their purpose. The proposal follows a review initiated by the CFPB earlier this year to assess of the potential impacts of a HMDA rulemaking on small businesses. The CFPB released a summary of that review with the proposed rule. Comments on the proposal are due by October 22, 2014. We are reviewing the proposed rule and plan to provide a more detailed summary in the coming days.

LinkedInFacebookTwitterGoogle+Share

CFPB, FTC, And State Authorities Coordinate Action Against Foreclosure Relief Companies

On July 23, the CFPB, the FTC, and 15 state authorities coordinated to take action against foreclosure relief companies and associated individuals alleged to have employed deceptive marketing tactics to obtain business from distressed borrowers. The CFPB filed three suits, the FTC filed six, and the state authorities collectively initiated 32 actions. For example, the CFPB claims the defendants (i) collected fees before obtaining a loan modification; (ii) inflated success rates and likelihood of obtaining a modification; (iii) led borrowers to believe they would receive legal representation; and (iv) made false promises about loan modifications to consumers. The CFPB and FTC allege that the defendants violated Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule, and that some of the defendants also violated the Dodd-Frank Act’s UDAAP provisions and Section 5 of the FTC Act, respectively. The state authorities are pursuing similar claims under state law. For example, New York Attorney General Eric Schneiderman announced that he served a notice of intent to bring litigation against two companies and an individual for operating a fraudulent mortgage rescue and loan modification scheme that induced consumers into paying large upfront fees but failed to help homeowners avoid foreclosure.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , , , , ,
POSTED IN: Federal Issues, Mortgages

House Oversight Committee Seeks DOJ Documents On RMBS Settlements

On July 24, House Oversight Committee Chairman Darrell Issa (R-CA) sent a letter to Attorney General Holder raising questions about the DOJ’s “inclination to enter into settlement agreements with respect to mortgage securities fraud” claims. The Chairman notes that large RMBS settlements to date have been predicated on violations of FIRREA, which allows the DOJ to initiate lawsuits seeking civil money penalties. The letter suggests the DOJ’s decision not to litigate or secure a criminal plea diverges from the agency’s strategy in other contexts. Chairman Issa asks the DOJ to produce, by August 14, all documents and communications since January 2011 referring or relating to two recent major RMBS settlements, as well as any policies in effect during that time governing the decision to conclude pre-suit negotiations.

LinkedInFacebookTwitterGoogle+Share

Members Of Congress Caution Education Department On Aid Disbursement Rulemaking

Over the past week, members of Congress from both parties have sent several letters to the Department of Education (DOE or ED) regarding its ongoing rulemaking related to the ways higher education institutions request, maintain, disburse, and otherwise manage federal student aid disbursements. As part of that rulemaking, the DOE is considering changes that would, among other things, clarify permissible disbursement practices and agreements between education institutions and entities that assist in disbursing student aid, and increase consumer protections governing the use of prepaid cards and other financial instruments. In general, the letters from Congress express concern that the draft rule is too broad and will limit student access to financial services. For example, in a July 17 letter from Congressman Luetkemeyer (R-MO), Senator Hoeven (R-ND), and 40 other lawmakers, including six Democrats, the members expressed concern that the DOE proposal could cover any account held by a student or a parent of a student if the financial institution had any arrangement, however informal, with a school and regardless of when or why the account was opened. The members support efforts to protect students from abuses made in disbursing student aid, but ask the DOE to tailor the rule such that it could not be construed so broadly as to restrict students’ access to financial services. Earlier this year, another group of lawmakers called on the DOE to “mandate contract transparency, prohibit aggressive marketing, and ban high fees when colleges partner with banks to sponsor debit cards, prepaid cards, or other financial products used to disburse student aid.”

LinkedInFacebookTwitterGoogle+Share

OFAC Announces Substantial Settlement With Bank Over Apparent Sanctions Violations

On July 24, the OFAC released a settlement agreement with a large bank to resolve apparent violations of narcotics sanctions regulations. The settlement agreement states that during separate periods from September 2005 through March 2009, the bank allowed transactions to be processed for certain individuals designated under the narcotics sanctions regulations, and failed to timely file blocked property reports regarding accounts owned by other designated individuals. The bank did not admit to any allegation made or implied by the apparent violations, but agreed to pay approximately $16.5 million to resolve the matter. The agreement explains that most of the apparent violations were disclosed by the bank to OFAC as a result of remedial action designed to correct a screening deficiency giving rise to the apparent violations, but that such disclosures do not qualify as voluntarily self-disclosed to OFAC within the meaning of OFAC’s Economic Sanctions Enforcement Guidelines because they were substantially similar to apparent violations of which OFAC already was aware.

LinkedInFacebookTwitterGoogle+Share

HUD Requires Electronic Retention Of Foreclosure-Related Documents

On July 23, HUD issued Mortgagee Letter 2014-16, which requires FHA mortgagees to retain electronic copies of certain foreclosure-related documents and extends the record retention period to seven years after the life of an FHA-insured mortgage. HUD advises that, in addition to any requirements for retaining hard copies or original foreclosure-related documents, loss-mitigation review documents also must be retained in electronic format. Those documents include: (i) evidence of the servicer’s foreclosure committee recommendation; (ii) the servicer’s Referral Notice to a foreclosure attorney, if applicable; and (iii) a copy of the document evidencing the first legal action necessary to initiate foreclosure and all supporting documentation, if applicable. The letter adds that mortgagees also must retain in electronic format a copy of the mortgage, the mortgage note, or the deed of trust. If a note has been lost, mortgagees must retain both an electronic and hard copy of a Lost Note Affidavit. The letter is effective for all foreclosures occurring on or after October 1, 2014.

LinkedInFacebookTwitterGoogle+Share

Federal Reserve Board Reports On Prepaid Cards, Domestic Payments

Recently, the Federal Reserve Board released two payments-related reports: (i) a report to Congress on government-administered general use prepaid cards; and (ii) a detailed report on the Federal Reserve’s 2013 payments study. The report on government-administered prepaid cards analyzes the $502 million in fee revenue collected by issuers in 2013, a majority of which was attributable to interchange fees. For consumer-related fees, the report indicates such fees derived primarily from ATM-related charges. The second report details findings from the 2013 Federal Reserve Payments Study, the fifth in a series of triennial studies conducted by the Federal Reserve System to comprehensively estimate and study aggregate trends in noncash payments in the United States. The paper expands on the 2013 summary findings originally published last December, and includes, among many other things, the following new findings: (i) credit cards are more prevalent than other general-purpose card types; (ii) among general-purpose cards with purchase activity in 2012, consumers preferred debit cards, with an average use of 23 payments per month, compared with an average of 11 payments per month for general-purpose credit cards and 10 payments per month for general-purpose prepaid cards; (iii) although the number of ATM cash withdrawals using debit cards and general-purpose prepaid cards dropped slightly, growth in the value of ATM withdrawals continued to exceed inflation; (iv) the number of online bill payments reported by major processors, which included those initiated through online banking websites and directly through billers and settled over ACH, exceeded three billion in 2012; and (v) there were more than 250 million mobile payments made using a mobile wallet application, and at least 205 million person-to-person or money transfer payments.

LinkedInFacebookTwitterGoogle+Share

FDIC Proposes Changes to Assessments

On July 23, the FDIC proposed a rule to revise its assessments regulation. Specifically, the FDIC proposes changing the ratios and ratio thresholds for capital evaluations used in its risk-based deposit insurance assessment system to conform the assessments to the prompt corrective action capital ratios and ratio thresholds adopted by the prudential regulators. The proposal also would (i) revise the assessment base calculation for custodial banks to conform to the asset risk weights adopted by the prudential regulations; and (ii) require all highly complex institutions to measure counterparty exposure for deposit insurance assessment purposes using the Basel III standardized approach credit equivalent amount for derivatives and the Basel III standardized approach exposure amount for other securities financing transactions. The FDIC explains the changes are intended to accommodate recent changes to the federal banking agencies’ capital rules that are referenced in portions of the assessments regulation.Comments are due by September 22, 2014.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , , ,
POSTED IN: Banking, Federal Issues

New FinCEN SAR Summary Report Discusses Bitcoin-Related Filings

On July 18, FinCEN published SAR Stats—formerly called By the Numbers—an annual compilation of numerical data gathered from the Suspicious Activity Reports (SARs) filed by financial institutions using FinCEN’s new unified SAR form and e-filing process. Among other things, the new form and process were designed to allow FinCEN to collect more detailed information on types of suspicious activity. As such, FinCEN describes the data presented in this first SAR Stats issue as “a new baseline for financial sector reporting on suspicious activity.” The primary purpose of the report is to provide a statistical overview of suspicious activity developments, including by presenting SAR data arranged by filing industry type for the more than 1.3 million unique SARs filed between March 1, 2012 and December 31, 2013. In addition, the redesigned annual publication includes a new SAR Narrative Spotlight, which focuses on “perceived key emerging activity trends derived from analysis of SAR narratives.” The inaugural Spotlight examines the emerging trend of Bitcoin related activities within SAR narrative data. It states that FinCEN is observing a rise in the number of SARs flagging virtual currencies as a component of suspicious activity, and provides for potential SAR filers an explanation of virtual currencies and the importance of SAR data in assessing virtual currency transactions.

LinkedInFacebookTwitterGoogle+Share

SEC Approves FINRA Rule To Prohibit Conditioning Customer Settlements On Expungement

On July 23, FINRA announced that the SEC approved a new rule prohibiting FINRA-supervised firms and registered representatives from conditioning settlement of a customer dispute on—or otherwise compensating a customer for—the customer’s agreement to consent to, or not to oppose, the firm’s or representative’s request to expunge such information from the Central Registration Depository (CRD) system. The CRD system is an online registration and licensing system for the securities industry, which contains information regarding members and registered representatives, such as personal information, registration, and employment history, as well as disclosure information including criminal matters, regulatory and disciplinary actions, civil judicial actions, and information relating to customer complaints and disputes. The information FINRA makes public through BrokerCheck is derived from CRD. Brokers who wish to have a customer dispute removed from the CRD system and, thereby, from BrokerCheck, must obtain a court order confirming an arbitration award recommending expungement relief. FINRA will announce the effective date of the new rule in a regulatory notice to be published shortly.

LinkedInFacebookTwitterGoogle+Share
COMMENTS: 0
TAGS: , ,
POSTED IN: Federal Issues, Securities

CFPB Expands Complaint Collection To Include Prepaid Cards, Additional Nonbank Products And Services

On July 21, the CFPB announced that it is now accepting consumer complaints regarding (i) prepaid products, including gift cards, benefit cards, and general purpose reloadable cards; (ii) credit repair services and debt settlement services; and (iii) pawn and title loans.  The CFPB’s decision to field prepaid card complaints comes as the agency prepares a proposed rule related to those products. The press release states that the CFPB is planning to initiate the prepaid card rulemaking “in the coming months.”  Director Cordray recently stated the rule would be proposed at the “end of the summer.”

The CFPB provides the following options for consumers to identify the nature of their complaints:

  • Prepaid Cards – (i) managing, opening, or closing your account; (ii) fees; (iii) unauthorized transactions or other transaction issues; (iv) advertising, marketing or disclosures; (v) adding money; (vi) overdraft, savings or rewards features; or (vii) fraud or scam.
  • Credit Repair and Debt Settlement – (i) advertising and marketing; (ii) customer service/customer relations; (iii) disclosures; (iv) excessive fees; (v) unexpected/other fees; (vi) incorrect exchange rate; (vii) lost or stolen money order; (viii) lost or stolen check; or (ix) fraud or scam.
  • Pawn and Title Loans – (i) charged fees or interest I didn’t expect; (ii) can’t stop lender from charging my bank account; (iii) received a loan I didn’t apply for; (iv) applied for a loan, but didn’t receive money; (v) lender charged my bank account on wrong day or for wrong amount; (vi) lender didn’t credit payment to my account; (vii) can’t contact lender; (viii) lender sold the property / repossessed or sold the vehicle; or (ix) lender damaged or destroyed property / vehicle.

As with all of the CFPB’s complaint categories, consumers also have an opportunity to describe their complaints regarding these new products and services in narrative form. Last week, the CFPB proposed a policy change under which it would publish those consumer complaint narratives, a move it hopes will increase the number of complaints the CFPB fields. At the same time the CFPB released its latest “snapshot” of consumer complaints, which provides an overview of the complaint process and summary analyses of complaints handled by the CFPB since July 21, 2011.

LinkedInFacebookTwitterGoogle+Share

CFPB Sues Debt Collection Law Firm

On July 14, the CFPB sued a Georgia-based law firm and its three principal partners for allegedly using high-volume litigation tactics to collect millions of dollars from consumers who may not actually have owed the debts or may not have owed the debts in the amounts claimed. The suit relates to the firm’s attempts to collect, directly or indirectly, consumer credit-card debts on behalf of both credit-card issuers and debt buyers that purchase portfolios of defaulted credit-card debts. The CFPB alleges the defendants violated the FDCPA and engaged in unfair and deceptive practices by: (i) serving consumers with deceptive court filings generated by automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys; and (ii) introducing faulty or unsubstantiated evidence through sworn statements even though some signers could not have known the details they were attesting to. The CFPB is seeking to permanently enjoin the firm from engaging in the alleged activity, restitution to borrowers, disgorgement, civil money penalties, and damages and other monetary relief.

LinkedInFacebookTwitterGoogle+Share

Federal, State Authorities Obtain Another Major RMBS Settlement

On July 14, the DOJ, the FDIC, and state authorities in California, Delaware, Illinois, Massachusetts, and New York, announced a $7 billion settlement of federal and state RMBS civil claims against a large financial institution, which was obtained by the RMBS Working Group, a division of the Obama Administration’s Financial Fraud Enforcement Task Force. Federal and state law enforcement authorities and financial regulators alleged that the institution misled investors in connection with the packaging, marketing, sale, and issuance of certain RMBS. They claimed, among other things, that the institution received information indicating that, for certain loan pools, significant percentages of the loans reviewed as part of the institution’s due diligence did not conform to the representations provided to investors about the pools of loans to be securitized, yet the institution allowed the loans to be securitized and sold without disclosing the alleged failures to investors. The agreement includes a $4 billion civil penalty, described by the DOJ as the largest ever obtained under FIRREA. In addition, the institution will pay a combined $500 million to settle existing and potential claims by the FDIC and the five states. The institution also agreed to provide an additional $2.5 billion in borrower relief through a variety of means, including financing affordable rental housing developments for low-income families in high-cost areas. Finally, the institution was required to acknowledge certain facts related to the alleged activities.

LinkedInFacebookTwitterGoogle+Share

FHFA OIG Assesses Risks From Smaller Lenders And Nonbank Mortgage Companies

On July 17, the FHFA Office of Inspector General (OIG) published a report on risks to Fannie Mae and Freddie Mac (the Enterprises) related to purchasing mortgages from smaller lenders and nonbank mortgage companies. The report states such lenders present elevated risk in the following areas: (i) counterparty credit risk—smaller lenders and nonbank lenders may have relatively limited financial capacity, and the latter are not subject to federal safety and soundness oversight; (ii) operational risk—smaller or nonbank lenders may lack the sophisticated systems and expertise necessary to manage high volumes of mortgage sales to the Enterprises; and (iii) reputational risk—the report cites as an example an institution that was sanctioned by state regulators for engaging in allegedly abusive lending practices. The report notes that in 2014 the FHFA’s Division of Enterprise Regulation’s plans to focus on Fannie Mae’s and Freddie Mac’s controls for smaller and nonbank sellers, which will include assessments of the Enterprise’s mortgage loan delivery limits and lender eligibility standards and assessment of the counterparty approval process and counterparty credit risk resulting from cash window originations. The report also notes FHFA guidance to the Enterprises last year on contingency planning for high-risk or high-volume counterparties, and states that the FHFA plans to issue additional guidance on counterparty risk management. Specifically, the Division of Supervision Policy and Support plans to issue an advisory bulletin focusing on risk management and the approval process for seller counterparties. The OIG did not make any recommendations to supplement the FHFA’s planned activities.

LinkedInFacebookTwitterGoogle+Share