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Financial Services Law Insights and Observations

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  • CFPB releases final policy on HMDA data disclosure

    Federal Issues

    On December 21, the CFPB announced final policy guidance covering the loan-level HMDA data the Bureau intends to make publicly available in 2019. The proposed policy was issued in September 2017 (covered by InfoBytes here) and, after reviewing public comments, the Bureau agreed to modify certain data disclosures to address concerns regarding consumers’ privacy. The final policy now excludes from public disclosure (i) the loan identifier; (ii) application and action taken dates; (iii) the property address; (iv) the applicants’ credit scores; (v) the mortgage originator’s NMLS identifier; and (vi) the results generated by the automated underwriting system. The Bureau will also exclude free-form text fields which report data such as the applicant’s race or ethnicity. The Bureau further announced that it will publish data for (i) the applicants’ ages; (ii) the loan amount; and (iii) the number of units in the dwelling as ranges rather than specific values.

    The announcement states that the Bureau intends to initiate in a separate notice-and-comment rulemaking in 2019 to incorporate any modifications of HMDA data into the text of Regulation C and will use the rulemaking to consider what HMDA data will be disclosed in future years. Additionally, the CFPB reiterated its intention to engage in a rulemaking to reconsider aspects of the 2015 HMDA rule, which was originally announced in December 2017 (covered by InfoBytes here).

    Federal Issues CFPB Mortgages HMDA Disclosures

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  • Illinois amends Residential Mortgage License Act

    State Issues

    On December 19, the Illinois governor signed HB 5542, which amends the state’s Residential Mortgage License Act of 1987 (the Act) to make various changes to state licensing requirements. Among other things, the amended Act (i) clarifies the definition of a “bona fide nonprofit organization”; (ii) provides a list of prohibited acts and practices; (iii) stipulates that a licensee filing a Mortgage Call Report is not required to file an annual report with the Secretary of Financial and Professional Regulation (Secretary) disclosing applicable annual activities; (iv) repeals a provision requiring the Secretary to obtain loan delinquency data from HUD as part of an examination of each licensee; (v) clarifies that the notice of change in loan terms disclosure requirements do not apply to any licensee providing notices of changes in loan terms pursuant to the CFPB’s Know Before You Owe mortgage disclosure procedure under TILA and RESPA, while removing the provision that previously excluded licensees limited to soliciting residential mortgage loan applications as approved by the Secretary from the requirements to provide disclosure of changes in loan terms; (vi) removes certain criteria concerning the operability date for submitting licensing information to the Nationwide Multistate Licensing System; and (vii) makes other technical and conforming changes. The amendments are effective immediately.

    State Issues State Legislation Licensing CFPB Know Before You Owe TILA RESPA Mortgages Disclosures

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  • California DBO requests comments on future rulemaking for commercial financing disclosures

    State Issues

    On December 4, the California Department of Business Oversight (DBO) released an invitation for comments from interested stakeholders in the development of regulations to implement the state’s new law on commercial financing disclosures. As previously covered by InfoBytes, on September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction —defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”—the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the DBO.

    The act requires the DBO to first develop regulations governing the new disclosure requirements, addressing, among other things, (i) definitions, contents, and methods of calculations for each disclosure; (ii) requirements concerning the time, manner, and format of each disclosure; and (iii) the method to express the annualized rate disclosure and types of fees and charges to be included in the calculation. While the DBO has formulated specific topics and questions in the invitation for comments covering these areas, the comments may address any potential area for rulemaking. Comments must be received by January 22, 2019.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance Agency Rule-Making & Guidance Nonbank

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  • 9th Circuit upholds $1.3 billion judgment for payday scheme

    Courts

    On December 3, the U.S. Court of Appeals for the 9th Circuit upheld a $1.3 billion judgment against defendants-appellants responsible for operating an allegedly deceptive payday lending scheme. As previously covered by InfoBytes, in October 2016, the FTC announced that the U.S. District Court for the District of Nevada ordered a Kansas-based operation and its owner to pay nearly $1.3 billion for allegedly violating Section 5(a) of the FTC Act by making false and misleading representations about loan costs and payment. The owner appealed to the 9th Circuit, arguing that the loan notes were “technically correct” because the fine print located under the TILA disclosure box contained all the legally required information. The appeals court disagreed. In affirming the district court’s judgment, the appeals court determined the loan note was still deceptive even though the fine print contained the relevant information about the loan’s automatic renewal terms, stating “[appellants’] argument wrongly assumes that non-deceptive business practices can somehow cure the deceptive nature of the Loan Note.” Moreover, the appeals court rejected the argument about technical correctness, citing the FTC Act’s “consumer-friendly standard” (which does not require technical accuracy) and noting that “consumers acting reasonably under the circumstances—here, by looking to the terms of the Loan Note to understand their obligations—likely could be deceived by the representations made there.” Among other things, the appeals court also rejected the appellant owner’s challenge to the $1.3 billion judgment (based on an argument that the lower court overestimated his “wrongful gain” and that the FTC Act only allows the court to issue injunctions), concluding that the owner failed to provide evidence contradicting the wrongful gain calculation and that a district court may grant any ancillary relief under the FTC Act, including restitution.

    Courts Ninth Circuit Appellate FTC Act Payday Lending TILA Disclosures

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  • Rhode Island Department of Business Regulation adopts mortgage foreclosure disclosure amendments

    State Issues

    On October 1, the Rhode Island Department of Business Regulation adopted amendments to its regulations relating to mortgage foreclosure disclosure notices and mediation conference obligations. The amendments—which are effective as of September 28—require entities and individuals regulated by the Rhode Island Division of Banking and non-exempt mortgagees to comply with the outlined foreclosure provisions. The provisions, among other items, (i) require use of the notice of pending foreclosure form; (ii) require provision of notice of mediation conferences to all mortgagors prior to initiating a foreclosure, in the specified manner; and (iii) outline qualifications for the mediation coordinator responsible for issuing certificates of compliance.

    State Issues Mortgages Disclosures Foreclosure

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  • Freddie Mac releases various selling updates in Guide Bulletin 2018-19

    Federal Issues

    On October 31, Freddie Mac released Guide Bulletin 2018-19, which announces selling updates, including updates to the Settlement/Closing Disclosure Statement that sellers are required to use for mortgages with note dates on or after September 25, 2017. Effective immediately, Freddie Mac and Fannie Mae have jointly agreed that sellers “must create or obtain . . . the [c]losing [d]isclosure form for each [m]ortgage, regardless of whether another form might also be required by a [s]tate or local law.” Bulletin 2018-19 additionally states that, with the exception of certain servicing transactions, the Settlement/Closing Disclosure Statement means the closing disclosure required under TILA for mortgages subject to TRID rules, “whether or not the TRID rules apply to the transaction.”

    Among other things, Bulletin 2018-19 also (i) updates certain rental income and documentation requirements; (ii) removes the special loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit TLTV ratio requirements for a “no cash-out” refinance of a mortgage owned or securitized by Freddie Mac with settlement dates on or after February 1, 2019; and (iii) removes the mandatory expiration date on Guide Form 960 (the Concurrent Transfer of Servicing Agreement), eliminating the need for sellers to submit a new guide form each year.

    Federal Issues Freddie Mac Fannie Mae Mortgages Selling Guide TRID TILA Disclosures

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  • FDIC proposes to eliminate annual disclosure requirement for state nonmember banks

    Agency Rule-Making & Guidance

    On October 25, the FDIC published a proposed rule in the Federal Register to rescind the annual disclosure requirement applicable to all state nonmember banks and insured state-licensed branches of foreign banks (collectively, “banks”). Specifically, the FDIC is proposing to eliminate 12 CFR Part 350, which, in general, required banks to prepare annual disclosure statements consisting of (i) required financial data comparable to specified schedules in the Call Reports filed for the previous two years; (ii) information that the FDIC may request, such as enforcement actions; and (iii) other information the bank chooses to disclose. According to the proposal, the FDIC has determined that the regulation is “outdated and no longer necessary,” because, with widespread access to the internet, information about the financial condition and performance of individual banks is now “reliably and directly offered to the public through the FDIC’s and the Federal Financial Institutions Examination Council’s (FFIEC) websites” in the form of Call Reports and Uniform Bank Performance Reports. This eliminates the need for the annual disclosure statement requirements. Similar disclosure requirements have already been rescinded in recent years by the Federal Reserve Board and OCC. Comments on the proposed rule must be received by November 26.

    Agency Rule-Making & Guidance FDIC Federal Register Disclosures Call Report FFIEC

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  • CFPB launches innovation webpage

    Fintech

    On October 16, the CFPB announced the launch of its new webpage for innovation, which aims to engage with entrepreneurs and the innovation community to promote competition, innovation, and consumer access within financial services. The webpage is a result of the Bureau’s new Office of Innovation (previously known as Project Catalyst) and includes information regarding the Global Financial Innovation Network and the Bureau’s proposed revisions to the Trial Disclosure Program Policy (previously covered by InfoBytes here and here). The webpage also encourages groups to “pitch a pilot” to work with the Bureau on consumer-friendly innovation ideas.

    Fintech CFPB Regulatory Sandbox Disclosures

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  • New California law requires non-bank lenders and other finance companies to provide commercial financing disclosures

    State Issues

    On September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction — defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”— the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the California Department of Business Oversight (DBO).

    Although the act is effective immediately, the act requires the DBO to first develop regulations governing the new disclosure requirements, and lenders are not required to comply with the provisions of the act until the final regulations are adopted and become effective. Once final regulations are in place, recipients of commercial financing offers will have to sign the disclosures, which are to be provided at the time of the offer. The disclosures must include (i) the total amount of funds provided; (ii) the total dollar cost of the financing; (iii) the term or estimated term; (iv) the method, frequency, and amount of payments; (v) a description of prepayment policies; and (vi) the total cost of the financing expressed as an annualized rate. Finance companies subject to the law are required to provide the annualized financing rate until January 1, 2024, at which time that portion of the disclosure requirement sunsets. The act also allows for finance companies who offer factoring or asset-based lending to provide alternative disclosures using an example transaction that could occur under the agreement.

    Importantly, the act does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover (i) true leases, but will apply to bargain-purchase leases; (ii) commercial loans under $5,000, which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements; and (iii) commercial financing offers greater than $500,000.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance

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  • CFPB publishes final rule relating to disclosure of confidential records and information

    Agency Rule-Making & Guidance

    On September 12, the CFPB published a final rule to modify its procedures for the disclosure of records and information. As previously covered in InfoBytes, the notice of proposed rulemaking—published August 2016—sought to amend procedures used to obtain information from the Bureau under the Freedom of Information Act (FOIA), the Privacy Act of 1974, and in legal proceedings. In response to comments on its proposal, the final rule revises the following subparts under section 1070 of title 12 of the Code of Federal Regulations: (i) Subpart A: “procedures related to the certification of authenticity of Bureau records and the service of summonses or complaints on the Bureau”; (ii) Subpart B: practices to provide requesters additional flexibility under FOIA; and (iii) Subpart C: “procedures for requests for information from the Bureau in connection with legal proceedings.” Subpart E, which implements the Privacy Act of 1974, received no comments and has been finalized without modification. The Bureau noted that the final rule does not revise Subpart D, which relates to the “confidential treatment of information obtained from persons in connection with the exercise of its authorities under federal consumer financial law.” The final rule takes effect October 12.

    Agency Rule-Making & Guidance CFPB FOIA Disclosures

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