On December 29, the CFPB responded to a December 21, 2015 letter from the Mortgage Bankers Association (MBA) regarding “lingering misperceptions and technical ambiguities” in TRID regulations that went into effect on October 3. The CFPB’s letter notes that, given inevitable yet unintentional errors in the early stages of the mortgage industry’s implementation of the regulations, regulators’ initial examinations will focus on industry members’ good faith efforts to ensure compliance with the rule. The CFPB further emphasized that examinations will be “corrective and diagnostic, rather than punitive.” Regarding cure provisions for violations of the rule, the letter states that TRID allows for corrections of specific post-closing errors, such as correcting non-numerical clerical errors and curing violations of monetary tolerance limits, if they exist. Moreover, TILA provisions regarding the corrections of errors will continue to apply to integrated disclosures: “TILA has long permitted creditors to cure violations, provided the creditor notifies the borrower of the error and makes appropriate adjustments to the account before the creditor receives notice of the violation from the borrower. 15 U.S.C. 1640(b).” The CFPB’s letter further advises the MBA that while TRID integrates disclosure requirements under RESPA and TILA, it does not “change the prior, fundamental principles of liability under either TILA or RESPA.”
On January 5, the FTC announced separate settlements with two online payday lenders to resolve charges dating back to April 2012 that the defendants violated TILA, the Federal Trade Commission Act (FTC Act), and the Electronic Funds Transfer Act (EFTA). According to the FTC, the defendants (i) violated TILA by failing to accurately disclose information regarding the loan terms, such as the finance charge, annual percentage rate, payment schedule, and the total of payments; (ii) violated the FTC Act’s prohibition on deceptive acts or practices by misrepresenting how much loans would cost consumers; and (iii) violated the EFTA by conditioning extension of credit to consumers on the consumers’ repayment by preauthorized debits from their bank accounts. In addition to prohibiting the defendants from engaging in practices that violate the TILA and EFTA, the FTC’s final orders require the defendants to each pay $2.2 million and collectively waive $68 million in uncollected fees to consumers. Combined with other settlements, the FTC has recovered approximately $25.5 million in connection with its case against several payday lending companies and related individuals.
On December 14, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling that a 2009 amendment to TILA, which requires creditors to provide borrowers with written notice of the sale or transfer of mortgages, does not apply retroactively. Talaie v. Wells Fargo Bank, No. 13-56314 (9th Cir. Dec. 14, 2015). In the putative class action case, plaintiffs alleged that one of the defendants transferred the deed of trust to the other defendant without providing notice to the borrowers, three years prior to the passage of the TILA amendment. Citing to Supreme Court precedent, the court reasoned that the presumption against retroactive legislation is “deeply rooted in our jurisprudence,” which can only be overcome by a clear and unambiguous Congressional intent. Id (citing Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994)). Applying Landgraf, the Ninth Circuit held that retroactive application here would (i) impair defendants’ rights at the time when they acted because they could do so without providing notice to the borrowers; (ii) increase the defendants’ “liability for past conduct”; and (iii) impose “new duties” on transactions already completed. The Ninth Circuit further concluded that Congress did not demonstrate a clear or unambiguous intention for the 2009 amendment to be given retroactive effect.
On November 20, the CFPB released its fall rulemaking agenda. The CFPB’s notable current initiatives include: (i) addressing arbitration clauses in contracts related to consumer financial products and services and providing an outline of rulemaking ideas such as “whether to propose rules that would prevent companies from using these agreements to foreclose consumers’ ability to bring class action lawsuits”; (ii) developing a Notice of Proposed Rulemaking, with an anticipated release date in the first quarter of 2016, to address concerns relating to payday and auto title lending; (iii) finalizing its December 2014 proposed rule, “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z),” to address consumer protection concerns relating to reloadable cards and other similar prepaid products; and (iv) considering rules to designate consumer installment loans and vehicle title loans as “larger participants” under the CFPB’s supervisory authority. Looking ahead, the CFPB’s report highlights the potential for rulemaking to address issues related to credit reporting and student loan servicing. Regarding student loan servicing, the CFPB stresses that it “has made it a priority to take action against companies that are engaging in illegal servicing practices,” and that it will “continue to monitor the market for trends and developments and evaluate possible policy responses, including potentially proposing rules.”
On November 25, the Federal Reserve and the CFPB announced that the dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions will not change in 2016. Based on the annual percentage decrease in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of June 1, 2015, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less beginning January 1, 2016 – the same thresholds that applied in 2015. Regardless of the loan amount, private education loans and loans secured by real property remain subject to TILA. The agencies published notices of thresholds in Regulation Z and Regulation M in the Federal Register on November 27, 2015.
On November 25, Fannie Mae issued Servicing Guide Announcement SVC-2015-14 to reveal recent updates to the Servicing Guide. Specifically, Fannie Mae updated guidance relating to 10 areas, including but not limited to: (i) the Remittance of Property (Hazard) Insurance Loss Proceeds for Short Sales; (ii) Pledge of Servicing Rights and Transfers of Interest in Servicing Compensation; (iii) Timeline Requirements for HAMP Expanded “Pay for Performance” Incentive Notices; (iv) Early Delinquency Counseling Requirements; and (v) the removal of the Borrower Notification Sample Letter Exhibit.
In separate November 17 announcements, Fannie Mae and Freddie Mac (collectively the GSEs) revealed updates to the Uniform Closing Dataset, developed as part of the Uniform Mortgage Data Program to facilitate lender submission of the Closing Disclosure Form under the new TILA/RESPA regulations. The updates revise Appendix A: Closing Disclosure Mapping to the MISMO and Appendix H: UCD Delivery Specification and include: (i) newly added data points; (ii) changes to conditionality for several data points; (iii) changes/additions to the enumerated values; and (iv) updates to conditionality details.
On November 18, the U.S. House of Representatives passed by voice vote H.R. 1210 and H.R. 1737, both of which will affect CFPB policies governing the mortgage and auto lending industries. The “Portfolio Lending and Mortgage Access Act” – H.R. 1210 – would amend the Truth in Lending Act to create a safe harbor from certain requirements for depository institutions making residential mortgage loans held in portfolios. Specifically, the bill permits loans that appear on a depository institution’s balance sheet to be treated as a Qualified Mortgage subject to certain limitations, thus permitting such loans to fall under the Ability-to-Repay Rule’s safe harbor provisions. The “Reforming CFPB Indirect Auto Finance Guidance Act” – H.R. 1737 – would invalidate CFPB Bulletin 2013-02, which provides guidance to indirect auto lenders regarding compliance with federal fair lending laws.
On October 20, the FTC announced that, following a public comment period, it approved final consent orders against two Las Vegas auto dealers for allegedly engaging in deceptive advertising practices. In June, the FTC filed two administrative complaints against the auto dealers for (i) misrepresenting the purchase price or leasing offers of vehicles; and (ii) failing to disclose key information in its advertisements, including if a down payment was required at the time of purchase. The final consent orders were unanimously approved in a 5-0 vote by the Commission and prohibit the dealers from (i) engaging in further action that results in violations of the Consumer Leasing Act and the Truth in Lending Act; (ii) misrepresenting the cost of financing or leasing a vehicle; and (iii) stating the down payment amount or percentage without also disclosing repayment terms and the annual percentage rate.
On July 22, 2015, the Department of Defense (“Department”) released its final rule amending the regulations that implement the Military Lending Act (“MLA”), which means that a wider range of credit products—including open-end credit—offered or extended to active duty service members and their dependents (“covered borrowers”) will now be subject to the MLA and its “all-in” 36% military annual percentage rate (“MAPR”) cap.
Specifically, the Department expanded the definition of “consumer credit” to be consistent with credit that is subject to the Truth-in-Lending Act (“TILA”)—credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments.
In response to the initial proposed rule, financial services industry stakeholders undertook a substantial effort to show how proposed modifications to the MLA regulations were overly broad and, in parts, inconsistent with the Department’s mandate under the MLA. At a high level, industry comment letters fell into five categories: Read more…
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 12, the United States District Court for the Eastern District of California denied Castle & Cooke Mortgage’s motion to dismiss in a putative class action brought by affected borrowers stemming from Castle and Cooke’s 2013 settlement with the CFPB. The underlying complaint is based on the allegation that the “loan officer who sold plaintiff his mortgage loan was paid a bonus that was based, at least in part, on the fact that plaintiff received a more expensive and/or less favorable loan than he otherwise would have received.” The complaint seeks various remedies, including actual and statutory damages under the Truth in Lending Act. The complaint contains four separate causes of action: (i) violations of TILA, (ii) violations of the Utah Residential Mortgage Practices and Licensing Act, (iii) unjust enrichment under Utah law, and (iv) violations of the California Unfair Competition Law. Castle & Cooke only moved to dismiss the final two claims. In denying Castle & Cooke’s motion to dismiss, the court found that both challenged claims could be pursued, rejecting Castle & Cooke’s arguments that the claims were inappropriate given the remedies available under TILA. With this denial, the plaintiffs will be able to continue pursuing all four causes of action as the litigation continues.
On June 9, the FTC announced that it has provided to the CFPB its 2014 Annual Financial Acts Enforcement Report. The report highlights the FTC’s enforcement, research, rulemaking, and policy development activities with respect to the Truth in Lending Act (Regulation Z), the Consumer Leasing Act (Regulation M), and the Electronic Funds Transfer Act (Regulation E). Areas detailed within the report include enforcement actions related to non-mortgage credit, including auto finance and payday lending, mortgage loan advertising, and forensic audit scams; and consumer and business outreach related to truth in lending requirements. The report, submitted on May 29, will be used to prepare the CFPB’s Annual Report to Congress. The FTC also submitted a copy of the report to the Federal Reserve Board.
On April 9, the CFPB announced a consent order with a California-based mortgage lender, requiring the lender to pay a $250,000 civil money penalty for advertising that allegedly led customers to believe the company was affiliated with the U.S. government. According to the consent order, the advertisements used the names and logos of the VA and FHA, described loan products as part of a “distinctive program offered by the U.S. government,” and instructed consumers to call the “VA Interest Rate Reduction Department” at a phone number belonging to the mortgage lender, thus implying that the mailings were sent by government agencies. The CFPB further alleged that the advertisements misrepresented interest rates and estimated monthly payments, including whether the interest rate was fixed or variable, and that consumers who called the company were sometimes told that the lender was endorsed by the VA or FHA. The CFPB determined that the advertisements were deceptive and misleading in violation of the CFPA and the Mortgage Acts and Practices Rule (MAP Rule or Regulation N). The CFPB also alleged violations of TILA and Regulation Z for failing to include certain disclosures in the advertisements. In addition to the civil money penalty, the consent order requires the lender to submit a compliance plan to the CFPB and comply with additional record keeping, reporting, and compliance monitoring requirements.
On March 31, the CFPB announced a new toolkit as part of its “Know Before You Owe” mortgage initiative. Designed to “help customers understand the nature and costs of real estate settlement services,” the step-by-step guide includes worksheets, checklists, and research tips for consumers. The new toolkit replaces an existing HUD booklet that creditors provide to mortgage applicants. The release of the toolkit precedes the August 1 effective date for the TILA/RESPA integrated disclosure rule, giving the industry “time to order and receive or print the new toolkit and integrate electronic versions into their mortgage origination systems.”
On March 26, 2015, the Mortgage Bankers Association (MBA) sent a letter to HUD’s Deputy Assistant Secretary Zadareky seeking clarification, guidance, and answers to outstanding questions raised by HUD’s early drafts of its new comprehensive Federal Housing Administration Single-Family Housing Policy Handbook. The MBA raises five particular concerns and requests a possible delay for the scheduled implementation date of June 15, 2015 for the following reasons in order to give the industry time to adapt including (i) some of the policy changes in the Handbook are expected to mean changes for the TOTAL Scorecard, and lenders will need access to a revised Developers Guide in order to align their systems with HUD’s systems; (ii) lenders are adapting to a large number of new legal and regulatory requirements. The TILA-RESPA Integrated Disclosure rule alone constitutes a major shift for lenders; (iii) it is currently not clear where a lender would go to find out if a borrower’s federal debt has been referred to the US Treasury for collection in order to comply with the Handbook’s requirement that delinquent Federal debt be resolved in accordance with the Debt Collection Improvement Act; (iv) the new required treatment of excluded parties puts an impossible burden on lenders because the lender must now guarantee that an employee of another company with which the lender is working does not have an employee who has been suspended or debarred by HUD; and (iv) the Handbook’s new definition of satisfactory credit is unclear and conflicts with payment history requirements in other sections of the Handbook.