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Following up on comments submitted to the CFPB on its proposal to amend the 2015 HMDA rule (see previous InfoBytes coverage here), the American Bankers Association (ABA)—along with state banking associations representing all 50 states and Puerto Rico—sent a letter on July 12 to the Bureau requesting that the new “complex” and “substantive” requirements scheduled to take effect January 1, 2018 be delayed to allow banks time to comply. The associations claim the Bureau (i) failed to sufficiently conduct industry research to identify and address questions and proposed solutions concerning the proposed changes, and (ii) inadequately addressed issues related to the protection of borrower data. The ABA also stresses that the software systems banks need to incorporate into their platforms to ensure compliant data collection will not be available in time “because the industry and systems vendors are still awaiting rule changes that will necessitate system adaptations.” The Bureau has been asked to announce its intention for a delay within the next month.
Special Alert: CFPB Finalizes Amendments to Know Before You Owe/TRID Rule and Proposes Additional Changes to Address “Black Hole”
On July 7, the CFPB issued amendments to the KBYO/TRID rule. The Bureau billed the changes as clarifying and technical in nature but stated that the final rule “also makes a limited number of additional substantive changes where the Bureau has identified discrete solutions to specific implementation challenges.” The rule becomes effective 60 days after it is published in the Federal Register, but compliance is not mandatory until October 1, 2018.
Importantly, however, instead of finalizing proposed amendments to address the “black hole” that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances, the Bureau issued a concurrent proposal to address the issue. The proposal would close the black hole by allowing creditors to reset tolerances using the Closing Disclosure regardless of when closing is scheduled to occur, although the Bureau sought comment on whether doing so would have unintended consequences. Comments on the proposal must be received 60 days after it is published in the Federal Register.
If you have questions about the rule or other related issues, please visit our TRID Resource Center, Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
On June 13, PHH Corporation sent a letter to the U.S. Court of Appeals for the District of Columbia Circuit responding to a June 7 letter from the CFPB that stated RESPA’s three-year statute of limitations is not applicable in its enforcement action against the company. In its letter, the CFPB cited a decision in Kokesh v. SEC where the U.S. Supreme Court ruled that a five-year limit applies to civil penalties, and that, furthermore, “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.” The Bureau further supported its argument for a five-year limit by claiming that RESPA’s three-year statute of limitations provision applies only to “actions” brought in a “United States district court or any other court of competent jurisdiction,” and its administrative proceeding against the company for alleged mortgage kickbacks was not an “action” under RESPA.
In response, PHH countered that Section 2462 contains a “catch-all limitations period ‘[e]xcept as otherwise provided’ by Congress.” Thus, the D.C. Circuit panel was correct when it held that Congress “otherwise provided” a three-year statute of limitations under RESPA that applies to enforcement proceedings because in the “second part of Section 2614, the term ‘actions’ is not limited to actions brought in court.” PHH further asserts that Dodd-Frank “repeatedly uses the term ‘action’ to encompass court actions and administrative proceedings.”
As previously covered in InfoBytes, on May 24, the D.C. Circuit, sitting en banc, heard oral arguments on the constitutionality of the CFPB. It did not indicate that it was inclined to revisit the panel’s determination that the Bureau misinterpreted RESPA when applying it to PHH’s practices.
On June 13, Representatives Randy Hultgren (R-Ill.) and Gwen Moore (D-Wis.) introduced legislation to strengthen the Federal Home Loan Bank (FHLB) System by ensuring access to mortgage credit and affordable housing assistance for millions of consumers. As set forth in a June 15 press release issued by Rep. Hultgren’s office, the Housing Opportunity Mortgage Expansion (HOME) Act (H.R. 2890) would allow lenders to regain membership in the FHLB System provided they (i) joined before the Federal Housing Finance Agency (FHFA) proposed its recently finalized membership rule, and (i) are able to “demonstrate a commitment to residential mortgage activities.”
As previously discussed in InfoBytes, FHFA’s final rule added a revision intended to help streamline membership applications. However, Hultgren asserts that the rule “restricts FHLB membership eligibility” by excluding “captive insurers” under its definition of an “insurance company” thereby prohibiting membership. The HOME Act, Hultgren states, “would clarify that companies with a history and mission of supporting residential housing should be able to continue to serve our communities.”
Industry Groups Submit Comments on FHFA’s Proposed Evaluation Guidance for “Duty to Serve” Provisions
As previously discussed in InfoBytes, the Federal Housing Finance Agency (FHFA) published a final rule last December implementing certain “Duty to Serve” provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008. Among other things, the rule requires that Fannie Mae and Freddie Mac (Enterprises) adopt formal plans to improve the availability of mortgage financing in a “safe and sound manner” for residential properties that serve “very low-, low-, and moderate-income families” in three specified underserved markets: manufactured housing, affordable housing preservation, and rural markets. The FHFA also published a Proposed Evaluation Guidance to outline the following: (i) FHFA's expectations regarding the development of such Underserved Markets Plans, and (ii) the process by which FHFA will evaluate annually Fannie’s and Freddie’s achievements under their Plans. The deadline to submit comments was June 7.
Mortgage Bankers Association (MBA) Letter. In its June 7 comment letter, the MBA stated that it commends efforts undertaken by the FHFA to develop a framework of requirements for the Enterprises to follow when preparing their Underserved Market Plans, as well as an evaluation system to rate implementation progress. Particularly, the MBA noted that, based on its data, the U.S. “will see 15.9 million additional households formed over the decade ending in 2024 . . . [which] will increase the need for all types of housing, including already limited affordable housing for very low-, low-, and moderate-income borrowers.” Furthermore, “manufactured home financing, affordable housing preservation, and additional rural housing opportunities can play a key role in providing both first-time home-buying opportunities and affordable rental options for consumers in these underserved markets.” With respect to the Proposed Evaluation Guidance, the MBA stressed the importance of flexibility so adjustments can be made for “unanticipated obstacles or opportunities caused by significant changes in market conditions that arise.”
Center for Responsible Lending (CRL) Letter. Also on June 7, CRL issued a comment letter to the Proposed Guidance in which it offered recommendations concerning “public input and transparency, assessing the contents of the plants to ensure meaningful objectives, and the evaluation and scoring process.” Specifically, CRL noted that while the Enterprises have taken measures such as reinstating lower down payment programs and creating pilot programs to address the underserved markets, it believes a “robust duty to serve process will further access credit initiatives by promoting and incentivizing responsible and sustainable lending to lower wealth households.” However, the CRL also raised several issues over the Proposed Evaluation Guidance, specifically in terms of the proposed scoring system. Under current FHFA guidance, Enterprises’ plans are scored on three factors: progress, impact, and effort/implementation. Conversely, under the proposed scoring system, failure only occurs due to a lack of progress because the impact and effort criteria are assessed only after the Enterprise receives a pass/fail determination. In reaction, CRL raised the following concerns: (i) “What guards against Enterprises putting only low impact objectives in the plan?” (ii) “What incentives do Enterprises have to score highly (above minimally passing)?” and (iii) “What guards against only proposing easily achievable objectives?” In addition to scoring methodology changes, CRL recommended that the FHFA implement a more rigorous loan product and loan purchase evaluation process and increase transparency.
Connecticut Law Expands Credit Card Fraud Statutes, Addresses Penalties for Rent Collections on Foreclosed Property
On June 6, Connecticut Governor Dannel Malloy signed into law Public Act No. 17-26, which expands the statutes on credit card fraud to cover crimes involving debit cards—including payroll and ATM cards—and outlines larceny penalties for collecting rent on foreclosed property. Paper and electronic checks or drafts are excluded from the definition of debit card under revised measure. Additionally, the law specifies changes pertaining to how “notice of a card’s revocation must be sent for purposes of these crimes and expands certain credit card crimes to cover falsely loading payment cards (credit or debit cards) into digital wallets.” Regarding larceny penalties, the law provides that a “previous mortgagor of real property against whom a final judgment of foreclosure has been entered” cannot continue to collect rent after the final judgment if there is no lawful right to do so. Penalties vary from a class C misdemeanor to a class B felony depending on the amount involved. The law takes effect October 1.
Fed Assesses $1.8 Million Civil Money Penalty Against Florida-Based Holding Company, Terminates Enforcement Action
On June 8, the Board of Governors of the Federal Reserve (Board) announced the termination of an enforcement action brought against a Florida-based holding company in April 2011 relating to deficiencies in its residential mortgage loan servicing, loss mitigation, and foreclosure processing activities found in an Office of Thrift Supervision (OTS) review of the company. Additionally, the OTS review found inadequate procedures to assess potential risks associated with such activities. Under the terms of the 2011 enforcement action, the holding company was required to enhance its oversight of its thrift subsidiary and improve its internal risk management, audit, and compliance programs to address deficiencies in these areas. The decision to terminate the action was based on a review conducted by the Board’s supervisory team, which determined the holding company made “sustainable improvement” in its mortgage servicing oversight practices. Furthermore, the mortgage servicer has agreed to pay a $1.8 million civil money penalty.
On June 7, the CFPB ordered a mortgage servicer to pay up to $1.15 million in restitution for failing to provide borrowers with required foreclosure protections when handling loss-mitigation applications. The consent order alleges the servicer violated RESPA by failing to send critical information to consumers who were applying for foreclosure relief, and, in some circumstances, beginning foreclosure proceedings on borrowers who had submitted completed applications. Pursuant to the consent order, in addition to restitution, the servicer is required to provide borrowers the opportunity to pursue foreclosure relief, must cease its illegal practices, and develop policies and procedures to ensure compliance with mortgage servicing rules.
On May 26, the Ninth Circuit issued decisions affirming the District Court’s decisions to grant summary judgments in two separate lawsuits brought against two different national banks by the city of Los Angeles (city). (View the district court’s summary judgments here and here). In separate appeals, the city alleged that each of the banks violated the Fair Housing Act by engaging in discriminatory mortgage lending to minority borrowers. The city also asserted that this practice resulted in risky loans and increased foreclosures, which lowered the city’s property tax revenues.
The appellate court disagreed with the city. In both decisions, the court observed that the city’s theory of liability was based on alleged “disparate impact,” which requires the city to demonstrate both the existence of a disparity and a facially neutral policy that caused the disparity.” The court noted that under established precedent a disparate impact claim, to succeed, must be supported by evidence of a robust causal connection between the disparity and the facially neutral policy. In the first case, the court held that the city failed to show such a robust causal connection, and in the second, it found “[t]he record does not reflect that the city raised a genuine issue of material fact as to a policy or policies with a robust casual connection to the racial disparity.” (View appellate memoranda for these cases here and here).
On June 5, the U.S. District Court for the Central District of Illinois ruled in favor of the Federal Trade Commission (FTC) and the states of California, Illinois, North Carolina, and Ohio resolving Do Not Call litigation against a direct-broadcast satellite service provider. The court found the service provider liable for making millions of calls resulting in violations of the Telemarketing Sales Rule (TSR) and the Telephone Consumer Protection Act, among other things. The $280 million in civil penalties, with a record $168 million going to the FTC, is the largest civil penalty ever awarded for violation of the FTC Act.
Additionally, the court issued a permanent injunction order against the service provider. Among the requirements in the order, the service provider will show within 90 days of the order effective date that they are “fully complying with the safe harbor provisions” and “have made no prerecorded telemarketing calls at any time during the five (5) years immediately preceding the effective date.” The service provider must also hire an expert to ensure compliance with the injunction and telemarketing laws, provide semi-annual compliance materials, and ensure their compliance with the TSR.