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.

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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.

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Ninth Circuit Denies Plaintiffs’ Motion to Rehear Case on Retroactive Application of 2009 TILA Amendment

Last week, the U.S. Court of Appeals for the Ninth Circuit denied plaintiffs’ December 28 Petition for Panel Rehearing and Hearing En Banc of a putative class action in which the plaintiffs alleged that defendant banks were required to comply with a 2009 TILA amendment requiring written notice of the sale or transfer of mortgages to borrowers. Talaie v. Wells Fargo Bank, No. 13-56314 (9th Cir. Feb. 19, 2016). In this case, the plaintiffs alleged that the TILA amendment should have applied retroactively to actions taken three years prior to its passage—namely the failure to provide written notice to borrowers regarding the transfer of a deed of trust from one defendant to the other. On December 14, 2015, the Ninth Circuit affirmed a district court’s ruling that the TILA amendment did not apply retroactively, citing Landgraf v. USA Film Prods., 511 U.S. 244, 265 (1994) and concluding that there was no clear Congressional intent that the amendment applied retroactively. Plaintiffs’ December 28 petition for rehearing argued that the case should be reheard on the issues of (i) whether the TILA amendment should apply retroactively to borrowers who are currently being foreclosed upon by lenders; and (ii) whether tender was required for the cancellation of documents cause of action. The Ninth Circuit denied the plaintiffs’ petition, stating that “[t]he full court has been advised of Appellants’ petition for rehearing en banc and no judge of the court has requested a vote on the petition for rehearing en banc.”

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FTC Announces Settlements with Online Payday Lenders Over Alleged Violations of TILA and EFTA

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.

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CFPB Responds to MBA Letter, Clarifies TRID Implementation Expectations

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.”

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