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Gov. Cuomo Announces New Title Insurance Regulations Target Business Gifts, Ancillary Fees and Transactions with Affiliates
On May 1, New York Governor Andrew M. Cuomo announced two new proposed regulations to “crack down on unscrupulous practices in the title insurance industry.” According to the Governor, the proposed measures were drafted in response to an investigation by the state Department of Financial Services (“NYDFS”), which found that “meals, entertainment, gifts” and other “inducements” provided in exchange for referring business to a title insurance company or agents, were charged to customers under the guise of “marketing expenses.” The first proposed regulation would, among other things, clarify the rules about “meals and entertainment” expenses, and other ancillary fees that title agents or title insurers may charge a customer. The second proposed regulation would require title insurance companies or agents that generate a portion of their business from affiliates to function separately and independently from any affiliate and obtain business from other sources. Importantly, a press release issued by NYDFS explains that “emergency” versions of both of these regulations have already been adopted by NYDFS (in response to the aforementioned investigation). As explained by NYDFS, the emergency rules, which are currently in effect, will remain in effect until final regulations are adopted.
New Mexico Enacts New Laws Affecting Payday Lenders, Check Cashing Service Providers, and the Enforcement of Service Contracts / Warranties
On April 6, New Mexico enacted H.B. 347, a bill amending the New Mexico Small Loan Act of 1955 (NMSLA) and Bank Installment Loan Act of 1959 (NMILA) to effectively eliminate “payday loans” in the state by requiring that loans of $5,000 or less be made pursuant to the NMSLA or NMILA. Specifically, the new law caps the annual percentage rate of such loans at 175% and requires lenders operating in New Mexico to provide loan terms of at least 120 days, and a minimum repayment schedule of four installments of substantially equal amounts. The new law also limits the fees and charges a lender may assess in connection with loans made under the NMSLA or NMILA as well as the number of times a lender may present a check or other debit for payment. Furthermore, lenders are prohibited from extending loans under the NMSLA or NMILA if the consumer has not repaid any loans previously obtained under these acts, and all lenders must report the terms of these loans to consumer reporting agencies. Notably, these new requirements do not apply to federally insured depository institutions. Moreover, H.B. 347—which takes effect on January 1, 2018—will be enforced exclusively by the state. Counties, municipalities, and other political subdivisions of the state are preempted from any regulation of terms and conditions regarding these loans whether by ordinance, resolution, or otherwise. A violation of either the NMSLA or the NMILA will constitute an unfair or deceptive trade practice under New Mexico’s Unfair Practices Act.
Also on April 6, Governor Susana Martinez signed into law S.B. 220, a bill that amends the Service Contract Regulation Act by adding and amending definitions; providing for surety through insurance policies; and providing specific information to be included into contracts and warranties. Specifically, the amendments—which are scheduled to take effect on June 16—allow providers to obtain a reimbursement insurance policy in lieu of maintaining a deposit with the Superintendent of Insurance.
That same day, Governor Martinez also enacted H.B. 276, a bill that increased from $500 to $2,500 the revenue threshold within a 30-day period that triggers New Mexico’s Uniform Money Services Act licensing requirement for check cashing businesses. H.B. 276 is scheduled to take effect July 1.
President Trump Hosts “National Economic Council” Listening Session with CEOs of Small and Community Banks
On March 9, President Trump met with 11 community bank CEOs at the White House seeking the bankers’ input on which regulations may be crimping their ability to lend to consumers and small businesses. The meeting included representatives from the Independent Community Bankers of America (ICBA), and the American Bankers Association (ABA), as well as nine bank executives from across the country. Treasury Secretary Steven Mnuchin, National Economic Council Chairman Gary Cohn, and White House Chief of Staff Reince Priebus also were present.
The President started the meeting by noting that “[n]early half of all private-sector workers are employed by small businesses” and that “[c]ommunity banks are the backbone of small business in America” before announcing his commitment to “preserving our community banks.” Following the President’s brief opening remarks, the attendees had the opportunity to introduce themselves and share specific examples of how excessive regulatory burdens affect their ability to serve their customers, make loans and create jobs at the local level. Proposals, such as the ICBA’s Plan for Prosperity, also were discussed.
Following the meeting, ABA President and CEO Rob Nichols released a statement “commend[ing] President Trump for meeting with community bankers to hear the challenges they face serving their clients.” He described the meeting as “an important step” toward re-examining the “highly prescriptive rules” that have created a “regulatory environment” in which “mortgages don’t get made, small businesses don’t get created and banks find it more difficult to make the loans that drive job creation.” The ICBA also issued a post-meeting Press Release, in which their Chairman, Rebeca Romero Rainey, explained that among the items discussed at the meeting was the ICBA’s “Plan for Prosperity”—a “pro-growth platform to eliminate onerous regulatory burdens on community banks” that “includes provisions to cut regulatory red tape, improve access to capital, strengthen accountability in bank exams, incentivize credit in rural America and more.” The ICBA Chairman also confirmed that the Association “looks forward to continuing to work with President Trump, his administration and Congress to advance common-sense regulatory relief that will support communities nationwide.”
Also weighing in was House Financial Services Committee Chairman Jeb Hensarling (R-TX), who issued a press release praising the President for “listening to the concerns of community bankers who have been buried under an avalanche of burdensome regulations as a result of Dodd-Frank.” Chairman Hensarling also took the opportunity to tout the Financial CHOICE Act, his bill that would make sweeping amendments to the Dodd-Frank Act. According to Chairman Hensarling, GOP members on the Financial Services Committee are “eager to work with the President and his administration this year to fulfill the pledge to dismantle Dodd-Frank and unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs.”
Flood Insurance Takes Center Stage on Hill this Week
On March 9, the Housing and Insurance Subcommittee held a hearing to examine the National Flood Insurance Program (NFIP) and, according to a memo released by the Subcommittee, “provide an opportunity to review the current government flood insurance model, the technological changes since 1968 that could improve the NFIP, and how the private sector could develop a private flood insurance market that compliments the current NFIP model.” With the current NFIP program set to expire on September 30, the hearing comes as Congress is in the process of drafting a proposal to reauthorize and overhaul the program.
Roy Wright—a top FEMA official and the only witness slated to testify at the hour-long hearing—answered questions and, according to the written statement submitted prior to his appearance, discussed “a number of opportunities [that] should be explored that could provide for the growth of the private market for flood insurance.” Wright stated, among other things, that “improving the nation’s overall flood resiliency will depend on finding an appropriate balance between reducing risk to the taxpayer through a greater private sector role while sustaining a robust and affordable federal program.”
Following the hearing, the Financial Services Committee issued a press release highlighting key takeaways, including:
- “The National Flood Insurance Program is in need of significant reform. The program runs an estimated annual deficit as high as $1.5 billion and already is $24.6 billion in the red to taxpayers, with no foreseeable way to ever repay them.”
- “Instead of reducing taxpayer risk to deadly floods, the federal government has spent more than $200 billion on flood recoveries since 2000 in addition to the NFIP. Meanwhile, customer dissatisfaction with how the NFIP operates, approves flood maps, and pays claims has remained high and keeps on growing with each new storm.”
- “The private sector can and should play a more meaningful role in flood insurance.”
Flood Insurance Market Parity and Modernization Act. Earlier in the week, on March 8, legislation intended to accelerate development of the private flood instance market was introduced in both Houses of Congress. In the Senate, Sens. Dean Heller (R-NV) and John Tester (D-MT) reintroduced the Flood Insurance Market Parity and Modernization Act (S. 563), which has been referred to the Committee on Banking, Housing and Urban Affairs. Meanwhile, in the House, Rep. Dennis Ross (R-FL.) and Rep. Kathy Castor (D-FL) announced the introduction of H.R. 1422–the House version of the Flood Insurance Market Parity and Modernization Act.
Flood Insurance Fairness Act. On March 7, Reps. Carlos Curbelo (R-Fla) and Charlie Crist (D-Fla) introduced the Flood Insurance Fairness Act (H.R.1401), a bill intended to “ensure fairness in premium rates for coverage under the National Flood Insurance Program for residences and business properties.” The bill has been referred to the House Committee on Financial Services. As explained by Rep. Crist in a press release, “[b]y extending relief to more Florida properties–including rentals and businesses–we can better protect the financial well-being of middle class families across the state.” A June 2015 version of the bill was previously introduced by Rep. Curbelo during the 114th Congress.
FHA MMI Fund Shows Gains in Fiscal 2016
On November 15, HUD released its 2016 Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance (MMI) Fund (the MMI Report). The MMI Report reflected the Fund’s improved financial condition for the fourth year in a row amid rising home prices, fewer defaults and a surge of new borrowers. The capital cushion of the Fund grew to 2.32 percent in fiscal 2016, up from 2.07 percent. It was only the second year since 2008 that the capital ratio, a proxy for the fund's health, exceeded the 2 percent minimum required by law. The net worth of the Fund, which stands behind $1 trillion in U.S. home loans and serves as a sort of savings account to pay lender claims if borrowers default, grew by $3.8 billion to $27.6 billion.
Proposed Rule Issued to Stimulate Robust Marketplace for Private Flood Insurance
On October 20, the FDIC, OCC, Federal Reserve, Farm Credit Administration, and National Credit Union Administration issued a proposed rule intended to develop further the private flood insurance marketplace by implementing certain provisions of the 2012 Biggert-Waters Flood Insurance Reform Act (Biggert-Waters Act). Notably, the proposed rule would “require regulated lending institutions to accept policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permit regulated lending institutions to accept flood insurance provided by private insurers that does not meet the statutory definition of ‘private flood insurance’ on a discretionary basis, subject to certain restrictions.” Comments on the proposal are due 60 days after it is published in the Federal Register.
Special Alert: D.C. Circuit Panel Rejects CFPB's RESPA Interpretation and Alters its Structure in PHH Corp. v. CFPB
On October 11, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion vacating a $109 million penalty imposed on PHH Corporation under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA), concluding that the CFPB misinterpreted the statute and violated due process by reversing the interpretation of the prior regulator and applying its own interpretation retroactively. Furthermore, the panel rejected the CFPB’s contention that no statute of limitations applied to its administrative actions and concluded that RESPA’s three-year statute of limitations applied to any actions brought under RESPA.
In addition, a majority of the panel held that the CFPB’s status as an independent agency headed by a single Director violates the separation of powers under Article II of the U.S. Constitution. However, rather than shutting down the CFPB and voiding all of its regulations and prior actions, the majority chose to remedy the defect by making the CFPB’s Director subject to removal at will by the President. In effect, this makes the CFPB an executive agency (like the Department of the Treasury) rather than, as envisioned by the Dodd-Frank Act, an independent agency (like the Federal Trade Commission). (One member of the panel, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s interpretation of RESPA.)
The panel remanded the case to the CFPB to determine whether, within the three-year statute of limitations, the payments to PHH’s affiliate exceeded the fair market value of the services provided in violation of RESPA. The CFPB is expected to petition for en banc reconsideration by the full D.C. Circuit or to seek direct review by the United States Supreme Court. Therefore, final resolution of this matter may be delayed by a year or more.
Click here to read the full Special Alert.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeremiah S. Buckley, (202) 349-8010
- Joseph M. Kolar, (202) 349-8020
- John P. Kromer, (202) 349-8040
- Jon David D. Langlois, (202) 349-8045
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Sasha Leonhardt, (202) 349-7971
- Sherry-Maria Safchuk, (310) 424-3917
- Steven vonBerg, (202) 524-7893