On June 6, the FTC announced that it submitted its 2015 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities related to compliance with Regulation Z (TILA), Regulation M (Consumer Leasing Act or CLA), and Regulation E (Electronic Fund Transfer Act or EFTA), as well as the FTC’s related activities in rulemaking, research, policy development, and consumer/business education related to TILA. According to the report, the FTC’s enforcement efforts in 2015 concerning TILA involved mortgage-related credit and non-mortgage credit, including automobile purchases and financing, car title loans, payday lending, and consumer electronics financing. Regarding mortgage-related credit activity, the report highlights continued litigation involving mortgage assistance relief services/forensic audit scams: “[i]n these scams, mortgage assistance relief providers offer, for a substantial fee, to review or audit the mortgage documents of distressed homeowners to identify violations of TILA, Regulation Z, and other federal laws.” The report further noted that under Regulation M and as part of the FTC’s Operation Ruse Control sweep on the auto industry, the FTC issued five final administrative consent orders and one consent agreement for public comment. Finally, regarding the FTC’s enforcement activities related to compliance with the EFTA, the report states that four of the FTC’s seven cases involving the EFTA in 2015 arose in the context of “negative option” plans, where consumers agreed to a trial period in which they received certain goods or services for no additional charge or at a reduced price, but later incurred recurring charges due to failure to cancel before the trial period ended.
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.
The Conference of State Bank Supervisors (CSBS) and the Multi-State Mortgage Committee (MMC) issued a report to state regulators regarding its 2015 review of the supervisory structure around examination and risk assessment of non-bank mortgage loan servicers. Notable servicing examination findings outlined in the report include: (i) violations and deficiencies related to loan transfer activity, noting that a “significant portion of servicing examination findings are tied to the mortgage servicing requirements implemented into the [RESPA] and [TILA] in January of 2014”; (ii) ineffective oversight of sub-servicer activity and insufficient third party vendor management; and (iii) ineffective examination management procedures on the part of mortgage servicers, leading to delayed examination processes, as well as impeded regulatory oversight. The report further outlines origination examination findings, emphasizing RESPA violations related to Mortgage Servicing Agreements (MSAs) which typically include payments for promotional advertising services performed on behalf of the mortgage company. Read more…
CFPB Issues Interim Final Rule, Broadens Small Creditors’ Eligibility to Originate Certain Mortgages
On March 22, the CFPB issued an interim final rule to implement the Helping Expand Lending Practices in Rural Communities (HELP) Act by providing broader eligibility under TILA for small creditors originating balloon-payment qualified and balloon-payment high-cost mortgages. Specifically, under the interim rule, a small creditor with no more than 2,000 first-lien covered transactions and total assets less than $2 billion will be eligible for Qualified Mortgage provisions if it originates at least one covered mortgage loan in an area designated rural or underserved per calendar year. Previously, the CFPB “adopted a single test to determine whether a small creditor operated predominantly in rural or underserved areas for the purposes of eligibility for the special previsions exemption,” requiring that a small creditor made more than half of its covered mortgage loans in the previous calendar year on properties that were designated rural or underserved.
The interim final rule also amends the definition of “rural” for the purposes of a procedural rule announced in early March to establish an application process for petitioning the CFPB to identify an area as rural or underserved for the purposes of Federal consumer financial law. “Rural” will now include any area so designated pursuant to the application process.
Eleventh Circuit Dismisses Plaintiff’s Complaint: Assignee Not Liable under TILA for Servicer’s Failure to Provide Payoff Balance
On March 1, the U.S. Court of Appeals for the Eleventh Circuit held that, as an assignee, Fannie Mae is not liable under TILA for a servicer’s failure to provide a borrower with a payoff statement. Evanto v. Federal Nat’l Mortg. Ass’n. No. 14-cv-61573 (11th Cir. March 1, 2016). The plaintiff alleged that, after foreclosure proceedings began, his servicer failed to provide the payoff balance of his mortgage within seven business days, as required under TILA 15 U.S.C. § 1639(g). Relying on the “plain meaning” of 15 U.S.C. § 1641(e), the court ruled that for an assignee of a creditor to be held liable under TILA, the violation must be apparent in the face of the “disclosure statement,” which, according to the court, the payoff statement requested by the plaintiff was not because it is provided after consummation. The court opined that “[t]here is no way that the failure to provide a payoff balance can appear on the face of the disclosure statement . . . . we reject [the plaintiff’s] argument that we should fix a supposed ‘loophole’ in the statute.” Id. at *4.
Notably, the court relied in part on informational statements from the CFPB’s website and Black’s Law Dictionary to define “disclosure statement” under TILA.