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On June 2, the CFPB released new FAQs regarding the Mortgage Servicing Rule and Regulation X and Regulation Z relating to escrow account guidance and analysis. General highlights from the FAQs are listed below:
- Regulation X provides that (i) an escrow account is any account established or controlled by a servicer for a borrower to pay taxes or other charges associated with a federally related mortgage loan, including charges that the servicer and borrower agreed to have the servicer collect and pay; and (ii) the computation year for an escrow account is a 12-month period that the servicer establishes for the account, starting with the borrower’s first payment date and including each subsequent 12-month period, unless the servicer issues a short year statement.
- Servicers must send the borrower an annual escrow account statement “within 30 days of the completion of the escrow account computation year.”
- Disbursement date is defined as “the date the servicer pays an escrow item from the escrow account.”
- “The initial escrow statement is the first disclosure statement that the servicer delivers to the borrower concerning the borrower’s escrow account,” and must include: (i) “the amount of the monthly mortgage payment”; (ii) “the portion of the monthly payment going into the escrow account”; (iii) “itemized anticipated disbursements to be paid from the escrow account”; (iv) “anticipated disbursement dates”; (v) “the amount the servicer elects as a cushion”; and (vi) “trial running balance for the account.”
- The annual escrow statement must include, among other things, “an account history that reflects the activity in the escrow account during the prior escrow account computation year and a projection of the activity in the account for the next escrow account computation year.”
- An escrow account analysis is the accounting a servicer conducts in the form of a trial running balance for an escrow account to: (i) “determine the appropriate target balances”; (ii) “compute the borrower’s monthly payments for the next escrow account computation year and any deposits needed to establish or maintain the account”; and (iii) “determine whether a shortage, surplus, or deficiency exists.”
- “If there is a shortage that is equal to or more than one month’s escrow account payment, the servicer may accept an unsolicited lump sum repayment to resolve the shortage. However, the servicer cannot require or provide the option of a lump sum payment on the annual escrow account statement. In addition, Regulation X does not govern whether borrowers can freely pay the servicer to satisfy an escrow account shortage. Therefore, “the acceptance of a voluntary, unsolicited payment made by the borrower to the servicer to satisfy an escrow account shortage is not a violation of Regulation X.”
- Servicers may inform borrowers that borrowers “may voluntarily provide a lump sum payment to satisfy an escrow shortage if they choose to” if “the communication is not in the annual escrow account statement itself and does not appear to indicate that a lump sum payment is something that the servicer requires but rather is an entirely voluntary option.”
On June 3, the CFPB published correcting amendments to its Official Interpretations to Regulation Z (TILA) that were not part of the final rule published in February, which exempts certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). As previously covered by InfoBytes, under the final rule, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria.
The amendments add one comment to the CFPB’s commentary that was not incorporated into the Code of Federal Regulations “due to an omission in an amendatory instruction,” and revise a second comment that inadvertently did not appear in the final rule. The amendments to the commentary relate to (i) Regulation Z section 1026.35(b)(2)(vi)(B), which covers requirements for escrow exemptions for HPMLs; and (ii) Regulation Z section 1026.43(f)(1)(vi), which addresses the exemption associated with balloon-payment qualified mortgages made by certain creditors under the minimum standards for transactions secured by a dwelling. The corrections took effect June 3.
On June 1, the FTC announced that it submitted its 2020 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities regarding the Truth in Lending Act (TILA), the Consumer Leasing Act (CLA), and the Electronic Fund Transfer Act (EFTA). Highlights of the enforcement matters covered in the report include:
- TILA and CLA. FTC enforcement actions concerning TILA/Regulation Z and CLA/Regulation M include: (i) efforts to combat deceptive automobile dealer practices; (ii) a payday lending action involving deceptive charges and tactics used to overcharge customers on loan repayments; and (iii) credit repair and debt relief schemes, including a student loan debt relief scheme involving illegal fees and false claims loan payments.
- EFTA. The FTC reported eight new or ongoing cases related to EFTA/Regulation E. These include: (i) negative option plans involving, among other things, companies applying recurring charges to consumers’ debit or credit card numbers for goods or services without obtaining proper written authorization; and (ii) use of robocalls for marketing deceptive products.
Additionally, the report addresses the FTC’s research and policy efforts related to truth in lending and leasing, and electronic fund transfer issues, including (i) collaboration with Department of Defense’s interagency group on preauthorized electronic fund transfer issues; (ii) a small business financing forum that provided “an overview of small business lending and the emergence of new online options available to businesses seeking finance”; and (iii) the FTC’s Military Task Force’s work on military consumer protection issues. The report also outlines the FTC’s consumer and business education efforts, which include several blog posts warning of new scams and practices.
- The TRID Rule covers a loan if it: “[i] is made by a creditor as defined in § 1026.2(a)(17); [ii] is secured in full or in part by real property or a cooperative unit; [iii] is a closed-end, consumer credit (as defined in § 1026.2(a)(12)) transaction; [iv] is not exempt for any reason listed in § 1026.3; and [v] is not a reverse mortgage subject to § 1026.33.”
- Regulation Z exempts certain mortgage loans from the TRID disclosure requirements (i.e., providing the LE and CD) (the “Partial Exemption”). This exemption covers certain subordinate housing assistance loans. To qualify, “a transaction must meet all of the following criteria: [i] the transaction is secured by a subordinate-lien; [ii] the transaction is for the purpose of a down payment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies; property rehabilitation assistance; energy efficiency assistance; or foreclosure avoidance or prevention; [iii] the credit contract provides that it does not require the payment of interest; [iv] the credit contract provides that repayment of the amount of credit extended is: forgiven either incrementally or in whole, deferred for at least 20 years after the transaction, or until the sale of the property, or until the property securing the transaction is no longer the consumer’s principal dwelling; [v] the total of costs payable by the consumer in connection with the transaction only include recording fees, transfer taxes, a bona fide and reasonable application fee, and a bona fide and reasonable fee for housing counseling services[;] the application fee and housing counseling services fee must be less than one percent of the loan amount; [and] [iv] the creditor provides either the Truth-in-Lending (TIL) disclosures or the Loan Estimate and Closing Disclosure[.] Regardless of which disclosures the creditor chooses to provide, the creditor must comply with all Regulation Z requirements pertaining to those disclosures.”
- The BUILD Act includes a partial statutory exemption from the TRID disclosure requirements for similar transactions. To qualify for the Partial Exemption from the TRID disclosure requirements under the BUILD Act, the loan must be a residential mortgage loan, offered at a 0 percent interest rate, have only bona fide and reasonable fees, and be primarily for charitable purposes and be made by an organization described in Internal Revenue Code section 501(c)(3) and exempt from taxation under section 501(a) of that Code.
- If a housing assistance loan creditor opts for one of the partial exemptions under either the Regulation Z Partial Exemption or under the BUILD Act, they are excused from the requirement to provide the Loan Estimate and Closing Disclosure for that transaction. The Partial Exemption under Regulation Z does not excuse the creditor from providing certain other disclosures required by Regulation Z. If the creditor qualifies for the exemption under the BUILD Act, they have the option to provide the GFE, HUD-1 and Truth In Lending disclosures in lieu of the LE and CD at the creditor’s discretion.
On April 12, the Federal Reserve Board issued a notice of proposed rulemaking to extend TILA recordkeeping and disclosure requirements implemented under Regulation Z. The Board proposes to revise FR Z (OMB No. 7100-0199) to: (i) include burden connected to disclosure requirements in “rules issued by the Bureau since the Board’s last Paperwork Reduction Act (PRA) submission, as well as for one information collection for which the Bureau estimates burden” but the Board formerly did not; (ii) break out and clarify “burden estimates” that were formerly consolidated; and (iii) eliminate burden associated with some requirements due to the Bureau accounting for burden for the entire industry, or because the burden is now deemed a part of an institution’s usual and customary business practices. The notice also mentions that the “disclosures, records, policies and procedures required by Regulation Z are not required to be submitted to the Board.”
On February 22, the U.S. District Court for the District of South Carolina granted the CFPB’s motion for default judgment and appointment of receiver in an action alleging defendants violated the CFPA and TILA by falsely representing that their lump-sum pension advances were not loans and that they carried no applicable interest rate. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2018 claiming that consumers were actually required to pay back advances with interest and were charged various fees for the product. The Bureau also alleged, among other things, that the defendants failed to provide customers with TILA closed-end-credit disclosures, and provided income streams from the advance payments as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates.
In its decision, the court upheld a magistrate judge’s report and recommendations, which concluded that the Bureau’s complaint sufficiently stated “a deception claim” under the CFPA, as well as violations of TILA and Regulation Z by the corporate defendants. The magistrate judge recommended that the court grant the Bureau “a permanent injunction to prevent future violations of the law,” redress and a civil money penalty awarded jointly and severally against the defendants, and appointment of a receiver. The court overruled various objections raised by the individual defendant’, including for failure to timely raise the objection before the magistrate judge, and because certain claims were without merit. Ultimately, the court granted the Bureau a default judgment against the defendants and adopted the report and recommendations of the magistrate judge for injunctive relief, consumer redress, a civil money penalty, and the appointment of a receiver.
On January 19, the CFPB issued a final rule amending Regulation Z, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act, to exempt certain insured depository institutions and credit unions from the requirement to establish escrow accounts for certain higher-priced mortgage loans (HPMLs). Under the final rule, any loan made by an insured depository institution or credit union that is secured by a first lien on the principal dwelling of a consumer would be exempt from Regulation Z’s HPML escrow requirement if (i) the institution has assets of no more than $10 billion; (ii) “the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year”; and (iii) the institution meets certain existing HPML escrow exemption criteria. The final rule essentially adopts the proposed rule (covered by InfoBytes here) without change, except the end date for the exception to the prerequisite against maintaining escrows is finalized as 120 days after the date of publication in the Federal Register, instead of the 90 days as proposed.
On January 15, the CFPB announced a complaint filed in the U.S. District Court for the District of Connecticut against a mortgage lender and four executives (collectively, “defendants”) alleging the defendants engaged in unlawful mortgage lending practices in violation of TILA, FCRA, ECOA, the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the CFPA. According to the complaint, from as early as 2015 until August 2019 (i) unlicensed sales people would take mortgage applications and offer and negotiate mortgage terms, in violation of TILA and Regulation Z; (ii) company policy regularly required consumers to submit documents for verification before receiving a Loan Estimate, in violation of TILA and Regulation Z; (iii) employees would deny consumers credit without issuing an adverse action notice, as required by the FCRA or ECOA; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of a FHA streamlined refinance loan, in violation of the MAP Rule. The Bureau is seeking an injunction, as well as, damages, redress, disgorgement, and civil money penalties.
On December 30, the CFPB issued two compliance assistance sandbox (CAS) approval orders covering a dual-feature credit card and an earned wage access product. The first approval was issued to a federal savings bank regarding its proposal to develop a “dual-feature credit card,” which would be offered to consumers with limited or damaged credit history to help reestablish more favorable credit history. According to the approval order, the consumer would be required to provide a security deposit to be used with the secured credit card feature and after “at least one year” and meeting certain eligibility requirements, the consumer would be offered to “graduate” to unsecured use of the credit card. The three-year approval order, by operation of TILA section 130(f), provides the bank a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f), as to any act done in good faith compliance with the order.
The second approval order covers certain aspects of an earned wage access (EWA) payment program, which allows employees access to their earned but unpaid wages prior to payday. According to the CAS application, an employee of a participating employer can download the company’s app and agree to the company’s terms prior to engaging in an EWA program. Among other things, the company notes that it will not engage in any debt collection activities related to the EWA program or submit reports to a consumer reporting agency regarding the transactions. The two-year approval order, by operation of TILA section 130(f), provides the bank a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order.
On December 22, the CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules took effect January 1.
Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $47 million to $48 million, thereby exempting institutions with assets of $48 million or less as of December 31, from collecting and reporting HMDA data in 2021.
TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.202 billion to $2.230 billion, thereby exempting creditors with assets of $2.230 billion or less as of December 31, from the requirement to establish escrow accounts for HPMLs in 2021.