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On April 4, the Colorado Court of Appeals reversed the trial court’s ruling assessing civil penalties against a foreclosure law firm for allegedly failing to disclose that its principals had an ownership interest in one of its vendors. The appeals court found that the civil penalty was not warranted because the failure to disclose “did not significantly impact members of the public as actual or potential consumers.” According to the opinion, the State of Colorado brought an enforcement action against a foreclosure law firm and its affiliated vendors, alleging, among other things, that the law firm and its vendors violated the Colorado Consumer Protection Act (the Consumer Act) by making “false or misleading statements of fact concerning the price” of their foreclosure services. The State argued that the relationship between the law firm and its vendors allowed the vendors to charge for services in excess of the market rate, pass on those costs to the law firm’s customers, and share a portion of the inflated costs with the law firm. While the trial court rejected two of the State’s claims against the defendants, it concluded that the law firm committed a deceptive practice under the Consumer Act that, “significantly impact[ed] the public as actual or potential consumers,” by failing to disclose its affiliated relationship with one of the vendors.
On appeal, the appellate court rejected the trial court’s conclusion that the alleged deception significantly impacted the public, noting that the deception was confined to two clients, Fannie Mae and Freddie Mac, in the context of their private agreements with the firm. Because the misrepresentation was in the context of a private relationship, and the tax-paying public were not “consumers of the law firm’s services for purposes of the Consumer Act,” the appellate court found the trial court erred when awarding the civil penalties under the Act. Moreover, the appellate court affirmed the trial court’s rejection of the State’s other claims against the law firm.
Court holds lenders may not require borrowers to use an affiliated appraisal management company under RESPA; denies class certification
On February 7, a magistrate judge of the U.S. District Court for the Northern District of Georgia recommended denial of a motion for class certification in a case alleging that a mortgage lender, an affiliated appraisal management company (AMC), and the individual owner, through trusts, of both the lender and the AMC committed RESPA violations. The plaintiffs alleged that the individual owner received a thing of value, i.e, profit distributions from the AMC, that were generated from the lender’s referrals to the AMC in violation of Section 8(a) of RESPA, notwithstanding the exemption for affiliated business arrangements, (i) because no disclosure of the affiliation was provided to the borrowers, or (ii) because, even when a disclosure was provided, the borrowers were required to use the AMC.
While reviewing whether the class would have standing, the court disagreed with the defendant’s assertion that the affiliated business arrangement exemption under Section 8(c)(4) of RESPA, which generally bans the required use of an affiliate, but permits a lender to impose its choice of an attorney, credit reporting agency, or real estate appraiser to represent the lender’s interest, should be interpreted to permit the mortgage lender’s required use of an affiliated AMC. The defendants argued that allowing a consumer to shop for an appraisal management company would be inconsistent with TILA and Regulation Z, whose official commentary to Section 1026.37(f)(2) lists “appraisal management company fee” as an example of an item that may be disclosed under “services you cannot shop for” in the Good Faith Estimate. The court rejected that assertion, stating that there are multiple settlement services the lender may require the consumer to use which do not run afoul of RESPA or TILA and that Section 8 is only implicated where there is a kickback involved. The court further examined the plain meaning of Section 8(c)(4) and determined that, from a statutory interpretation perspective, an appraiser and an appraisal management company are not “one and the same.”
Additionally, the court disagreed with the defendants argument that the plaintiffs’ payment to the AMC was covered under the exception in Section 8(c)(2) of RESPA because the payment was not a “thing of value” under Section 8(a). In rejecting the defendants’ argument, the court noted the kickback at issue is the profit ultimately paid to the individual owner, not the plaintiffs’ payment to the AMC, and the defendants did not present any authority that the exception applies when the payment is for ownership interest.
The court ultimately recommended the denial of the class certification because plaintiffs did not demonstrate that ascertaining the class was administratively feasible, including the problem of ascertaining which loans were federally related mortgage loan and which were not. The court also concluded that, given the number of individual inquiries in the case, the requirement that common question of law and fact predominate was not satisfied.
On March 22, the U.S. District Court for the Western District of Kentucky denied the CFPB’s motion to reconsider an opinion issued in July 2017, which held that a safe harbor provision for affiliated business arrangements under Section 8(c)(4) of RESPA protects a Louisville law firm's relationship with a string of now-closed title insurance agencies (previously covered by InfoBytes here). In denying the request, the court clarified its previous reasoning and found that the transactions did not violate Section 8(a) because the law firm did not give the title insurance agencies a “thing of value,” and even assuming a violation, the safe harbor under Section 8(c)(2)—even though the court previously relied on Section 8(c)(4)—applied. The court relied on the D.C. Circuit’s 2016 interpretation of Section 8(c)(2) in PHH Corporation v. CFPB, which found that payments made in exchange for a service “actually received” is not the same as payments made for referrals and a payment is bona fide if it amounts to “reasonable market value” for the service. In applying the PHH holding to the present facts, the court concluded that the payments consumers made to the title agencies, which were subsequently distributed as profits to corresponding partners, were made in exchange for title insurance that was actually received by the consumer. Moreover, the court noted that there was no evidence that the payments were above market value, and therefore determined they were bona fide. Lastly, the opinion emphasized that the purpose of RESPA is to prevent unnecessary increases in costs of certain settlement services for consumers, and the payments resulting from the relationship between the law firm and the title agencies not only were for services actually received but were not found to increase the cost of those services at settlement.
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Tim Lange to discuss "Ease your pain at the state level: Recommendations for navigating the licensing issues in the states" at the Online Lenders Alliance Compliance University
- Amanda R. Lawrence, Aaron C. Mahler, and Jonice Gray Tucker to discuss "Expanded role for the FTC ahead: Implications for bank and nonbank financial institutions" at an American Bar Association Banking Law Committee Webinar
- Buckley Webcast: Flirting with alternatives — Opportunities and challenges created by alternative data, modeling, and technology
- Daniel P. Stipano to discuss "Reporting requirements for credit unions: CTRs and SARs" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Daniel P. Stipano and Moorari K. Shah to discuss "Vendor management: What is the NCUA looking for?" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference