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Financial Services Law Insights and Observations


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  • CFPB Issues Draft Monthly Mortgage Statement, Outlines Future Mortgage Servicing Rules


    On February 13, the CFPB released a draft model monthly mortgage statement designed to help implement Dodd-Frank Act amendments to the Truth in Lending Act that require such statements. The CFPB acknowledges that many financial institutions already provide monthly statements to borrowers. However, the Dodd-Frank Act requires specific information to be provided in regular statements, including (i) the principal amount, (ii) the current interest rate, (iii) the interest rate reset date, (iv) a description of late or prepayment fees, (v) housing counselor information, (vi) certain contact information, and (vii) other information prescribed by CFPB regulations. The CFPB has been testing the draft model statement with consumers and now is seeking broader public comment though its website. After this informal comment period ends, the CFPB will proceed to a formal rulemaking through which it will set the requirements for monthly statements and provide a model form for use in complying with the new rules. Institutions will have some flexibility to adjust the model. One day prior, CFPB Director Richard Cordray published an op-ed in which he outlined additional agency efforts regarding mortgage servicing, including future rules that would restrict the use of force-placed insurance and require additional disclosures relating to hybrid adjustable rate-mortgages.

    CFPB Dodd-Frank Mortgage Servicing

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  • Special Alert: Report on NMLS Annual User Conference and Training


    The Nationwide Mortgage Licensing System and Registry (NMLS) held its fourth annual NMLS User Conference and Training (the Conference) in Scottsdale, Arizona from February 6-9, 2012. The Conference brought together state and federal mortgage regulators, industry professionals, compliance companies, top law firms, and education providers to learn about the latest developments in mortgage supervision and to discuss pressing issues confronting the industry. This special report includes a summary of key topics addressed at the meeting as well as announcements regarding important state licensing initiatives, including:  (i) enhancements to the NMLS system to expand its use for licensing of non-mortgage financial services companies, (ii) issuance of SAFE Act examination guidelines, and (iii) the announcement of efforts to develop a uniform mortgage loan originator state test.

    The first day of the Conference included the bi-annual NMLS Ombudsman Meeting, which provided an opportunity for NMLS users to raise issues concerning the NMLS, state and/or federal regulation. NMLS Ombudsman Deborah Bortner, Director of the Non-Depository Division of the Washington Department of Financial Institutions, presided over the meeting, in which specific questions submitted by industry representatives were addressed. Several of the submitted questions focused on "leveling the playing field" between depositories and non-depositories by suggesting various means to allow a more efficient flow of mortgage loan originators (MLOs) from a federally-registered MLO status to a state-licensed MLO status. Suggestions included "transitional licensing", which would allow a federally registered MLO that moves to a state-licensed entity to continue operating for a period of 120 days, during which the individual would complete education, testing and other requirements in order to secure licenses within the transitional approval. Another suggestion was to allow federally registered MLOs to complete state education, examination, and other approval requirements prior to moving from a federal registrant to a state licensee. During a later panel, the Consumer Financial Protection Bureau (CFPB) indicated that there are no immediate plans to amend the requirements applicable to federal registrants.

    Full details regarding the specific issues submitted for comment, as well as accompanying exhibits, are available on the NMLS website.  A recording of the Ombudsman Meeting should be posted to the NMLS Resource Center in the near future.

    The remaining days of the Conference covered various federal and state regulatory rule implementation, updates for industry, and a look ahead at new initiatives and changes to the NMLS. Specifically, various sessions covered the following issues:

    • The CFPB’s supervision of the mortgage industry and the direction that the CFPB is taking with respect to depository and non-depository financial services, including a discussion with CFPB staff regarding issues of interpretation and implementation of state licensing, NMLS and the rules implementing the SAFE Act. Of particular interest, the CFPB indicated that it has started planning its first set of exams of non-depository financial institutions and that the CFPB will select institutions for examination based on size, volume, type of product or service offered, extent of state oversight, patterns of complaints, and other factors.
    • Industry views on the regulation of and the future of the mortgage industry.
    • Updates regarding the Mortgage Call Report, including a review of preliminary data, how it is used by regulators, and a review of additional changes and updates to assist with the compliance process.
    • Review of the NMLS federal registration process and a discussion on how to improve the process.
    • NMLS testing and education discussion, with a focus on understanding the desire from industry for increasing the available continuing education topics in order to provide a better learning experience for MLOs.
    • NMLS federal examination and third party compliance management, including a discussion of best practices that institutions can consider to efficiently and effectively implement policies and procedures to ensure third parties are properly licensed and/or registered.
    • Credit and criminal background checks for MLOs, control persons, and branch managers, which included discussions of expanding the criminal background check process from MLOs to also include branch managers and control persons.
    • Potential modifications to the NMLS to accommodate state pre-notification filings for changes in control, changes in branch manager, or other changes in corporate structure or operations that require prior notice.
    • Federal and state rules implementation, including ability to repay, loan officer compensation and TILA/RESPA disclosure conflicts.
    • Discussion of important FHA rule changes for 2011 and upcoming changes in 2012.
    • Surety bonds necessary to comply with state and federal law, including underwriting considerations, risk mitigation, and claim resolution.

    In addition to the above general sessions, the Conference covered several major changes and new initiatives announced by the Conference of State Bank Supervisors (CSBS), including:

    • System Enhancements and Expansion of NMLS to Cover Additional Financial Services Companies. The CSBS announced plansto expand the use of the NMLS to include nonbank, non-mortgage financial service providers, including consumer lenders, money services businesses, and debt collectors. Following this expansion, these other nonbank firms will be obligated to alter their compliance programs in order to apply for, amend, and renew state licenses using the NMLS. Entities that previously obtained and maintained relevant licenses via hard-copy applications and filings will be required to transition onto the NMLS, a process which could prove difficult as licensee's struggle to learn the new system and which may allow the state agency an opportunity to vet anew its licensees. While the electronic application and related processes will be centralized and uniform, entities that use the NMLS to obtain and maintain their licenses still will be subject to various unique state-specific requirements, which must be dealt with outside of the NMLS. For many participants in the mortgage industry, the mandated use of the NMLS has brought with it heightened compliance costs and increased reporting requirements, particularly as states increased disclosure and other application requirements to become more consistent with other states.  Non-mortgage state licensed financial institutions should be mindful of this experience and be prepared to review their licensing compliance procedures and resources following transition to the NMLS.  At a minimum, licensees should carefully monitor developments regarding licensing requirements during and after the transition to the NMLS.Through expansion of the system state bank regulators expect to see improved efficiency, and regulated entities can expect enhanced supervision and increased public access to license, registration, and supervisory information. The expansion is scheduled to begin in April when at least 12 states will begin transitioning their exiting licensing and registration systems to the NMLS.Further, the April expansion and update will include other changes and enhancements in an effort to improve the system overall:

      • New Workflow – the changes and enhancements to the system require a new "license management workflow" (i.e., online navigation and information contained in the uniform plans) to support the new Business Activities section. The new workflow will (1) introduce a new navigational landing page in the Company (MU1), (2) combine the selection of licenses and entry of transition numbers into one step, and (3) introduce new navigation items onto the License/Registrations page.
      • Amended Forms – the uniform mortgage forms (i.e., MU1 and MU3) will be amended to "Company Filing" and "Branch Filing", respectively, in anticipation of the expansion of the system to cover non-mortgage related industries.
      • Business Activities – expands this section of the Form MU1 to allow users to identify a broader range of business activities conducted by the user (e.g., loan modifications, seller of money orders) based on definitions developed by the states.
      • Approvals and Designations – introduces new approval and designation types, and allows users to add approval or identification numbers.
      • Disclosure Explanation – in addition to updated company, branch and individual disclosure questions, a new disclosure explanation feature will allow users to add explanations to each disclosure question that has a “yes” answer in conjunction with submitting a filing.
      • Document Upload – users will be able to upload specific materials into the NMLS to be shared by state regulators, thereby eliminating the need to send certain materials via hard copy outside the system. The type of materials that may be uploaded may include business plans, certificates of good standing, fidelity bonds, errors and omissions insurance, and other materials generally provided in the application and renewal process.
      • Criminal Background Check for a Control/Qualifying Individual – all state licensed individuals will be required to complete a criminal background check via the NMLS.

    Copies of the updated forms and "Business Activities Description" are available on the NMLS under News & Events.

    Upon implementation of the new forms in April, existing NMLS users should be aware that in order to submit any new applications, address updates, addition of officers, or other general maintenance items, the company will be required to complete all new Company Filing fields, and the company's control persons and qualifying individuals must complete additional questions and information requests.

    • SAFE Act Examination Guidelines. The Multi-State Mortgage Committee (MMC), a ten-state representative body created by CSBS and AARMR, issued SAFE Act Examination Guidelines (SEGs) for use by state non-depository mortgage regulators.  The SEGs are not required guidelines for state agencies, but utilization of SEGs is intended to allow state agencies to determine compliance with the SAFE Act and provides consistent and uniform guidelines for use by institution in-house compliance and audit departments conducting SAFE Act and state compliance reviews. The SEGs are presented in a question and answer format and are “modular,” such that state mortgage regulators may easily use part or all of the SEGs as they see fit.

    • Uniform MLO State Test. The CSBS announced that efforts are underway to develop content for a uniform MLO state test. Currently, an MLO is required to take the state component of the SAFE Act mortgage loan originator test for each state in which he or she intends to be licensed. With the introduction of a uniform MLO state test, an MLO will meet the testing requirement for multiple states by passing a single test that includes content representative of all of the states.An ad hoc committee composed of state regulators has been charged with researching the feasibility of developing a uniform MLO state test.  In coordination with industry subject matter experts and test consultants, the committee has completed its initial feasibility studies and test development is now underway. Later this year, the committee plans to present a uniform test proposal to state regulators.

    A message that pervaded the Conference was that with the completion of several multi-year NMLS initiatives responding to the requirements of the SAFE Act (e.g., the introduction of the NMLS Mortgage Call Report), NMLS is turning its attention to implementing changes to and expanding the NMLS.  While the changes are ultimately intended to streamline the NMLS process, current NMLS users should prepare for additional oversight and regulation, and licensees transitioning onto the system should prepare for heightened compliance costs and increased reporting requirements.

    For more information about NMLS, visit the NMLS Resource Center, About NMLS.

    CFPB Mortgage Licensing Nonbank Supervision Mortgage Origination

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  • CFPB Releases First Semi-Annual Report, Director Testifies Before Senate Banking Committee


    On January 31, the Consumer Financial Protection Bureau (CFPB) released its first semi-annual report to Congress and CFPB Director Richard Cordray appeared before the Senate Banking Committee. The report reviews the CFPB's structure and purpose, and provides a general overview of the CFPB's activities to date. The report also identifies consumer "shopping challenges" by product category (i.e., challenges that consumers face when shopping for mortgages, credit cards, and student loans), and identifies the CFPB's planned activities for the next six months.

    Issues raised during the Senate hearing included: (i) prepaid card regulation, (ii) the definition of "abusive" as it is used in the Dodd-Frank Act, (iii) the "ability to pay" rule required by Dodd-Frank, and (iv) treatment of privileged information during the examination process. First, the Director acknowledged the importance of innovation in the card market, but also noted that regulation of credit and debit cards likely have pushed the market towards prepaid cards. He noted legislation sponsored by Senator Menendez to regulate the prepaid card market, and said the Bureau would welcome legislation addressing prepaid card issues. Second, consistent with his statements to the House Financial Services Committee, the Director reported that a rulemaking to further define the term "abusive" is not currently on the CFPB's agenda. Third, Director Cordray did not provide insight into the CFPB's view of the "ability to repay" rule, noting that at this time the Bureau has not prepared a draft rule. Finally, Director Cordray indicated support for a legislative fix to protect legal privileges applicable to documents and information that could be requested by the CFPB during the course of its examinations.

    CFPB Prepaid Cards

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  • CFPB, DOD, FTC, and State AGs Partner to Develop Enforcement Action Database

    Financial Crimes

    On January 25, the CFPB, the Department of Defense, the FTC, and the New York Attorney General announced a partnership to develop the Repeat Offenders Against Military (ROAM) Database to track enforcement actions against entities or individuals engaged in consumer financial frauds against military personnel, veterans, and their families. The database, which should be available by mid-February, will compile publicly available information about completed civil and criminal legal actions and will be accessible and searchable by state attorneys general, U.S. Attorneys, and Judge Advocates from all branches of the armed services. The Consumer Protection Committee of the National Association of Attorneys General already has sent a letter to state attorneys general asking them to populate the new database with their enforcement action information. The FTC noted that the ROAM database will complement its Consumer Sentinel Network, which collects and provides wide access to consumer complaints, including those related to the frauds against servicemembers and their families.

    CFPB FTC Servicemembers State Attorney General

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  • CFPB Seeks Third Round of Feedback on Mortgage Closing Forms


    On January 24, the CFPB announced a third round of testing of prototype mortgage closing forms as part of its Know Before You Owe campaign. In this round, the CFPB asks the public to compare two versions of its prototype closing forms and consider how each works with the prototype initial disclosure form the CFPB previously developed. The CFPB asks consumers to consider certain specific questions, including whether changes to loan terms or costs are easily identifiable from initial disclosure to closing. The CFPB also seeks comment on whether the disclosures are easy for lenders and settlement agents to use and explain. As with prior rounds of testing, the CFPB will travel to local communities to review the forms with the public. A fourth and final round of testing is expected next month.

    CFPB Mortgage Origination

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  • House Subcommittee Holds Hearing on CFPB Under Director Cordray

    Consumer Finance

    On January 24, the House Oversight Subcommittee on TARP, Financial Services, and Bailouts of Public and Private Programs held a hearing to receive testimony from newly appointed CFPB Director Richard Cordray. Committee members (i) sought the Director’s interpretation of the term “abusive” as it is used in the Dodd-Frank Act, (ii) requested more transparency into the CFPB’s planned regulatory actions, and (iii) requested CFPB action to mitigate the impacts of its regulations on small and community institutions. Mr. Cordray declined to offer a definition of “abusive”, relying instead on the statutory language. The Director did state that abusive practices that are not also either “unfair or deceptive”, likely would be addressed on a “facts and circumstances” basis rather than through an “abstract” regulatory definition. He did not rule out using “abusive practices” as the basis of an enforcement action prior to issuing any further guidance or rulemaking. The Director committed to consider following the SEC’s model of periodically publishing a regulatory agenda. He also explained that the CFPB will consider and address impacts of its regulatory actions on community banks and financial institutions with under $10 billion in assets.


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  • CFPB and FTC Announce Memorandum of Understanding to Coordinate Regulatory Activities

    Consumer Finance

    On January 23, the CFPB and the FTC announced that the agencies had entered into a memorandum of understanding (MOU) to facilitate coordination of the agencies’ consumer financial rulemaking, enforcement, and supervision activities. The MOU establishes regular meetings between the two entities, as well as processes for providing notice of enforcement activities. Under the MOU, the CFPB and the FTC will be able to share consumer complaint information, and the FTC can request CFPB examination reports and confidential supervisory information.


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  • CFPB Finalizes Amendments to Remittance Transfer Rules (Regulation E)


    On January 20, the CFPB issued a final rule to amend regulations applicable to consumer remittance transfers of over fifteen dollars originating in the United States and sent internationally. Generally, the final rule requires remittance transfer providers to (i) provide written pre-payment disclosures of the exchange rates and fees associated with a transfer of funds, as well as the amount of funds the recipient will receive, and (ii) investigate consumer disputes and remedy errors. The rulemaking stems from a Dodd-Frank Act provision that expanded the scope of the Electronic Fund Transfer Act to cover international money transfers, and concludes an effort started by the Federal Reserve Board (FRB) that was transferred to the CFPB last year. The final rule closely tracks the proposed FRB rule, but among other things, provides (i) a thirty-minute cancellation period for consumers, as opposed to the proposed one-day period, (ii) additional compliance guidance for specific circumstances, including for transactions conducted by mobile applications, and (iii) revised model disclosure forms. Concurrent with the final rule, the CFPB issued a request for comment on additional revisions to the regulations, including comments and information for use in (i) setting a specific safe harbor for remittance transfer providers that do not provide such services “in the normal course of business”, and (ii) applying the new disclosure and cancellation requirements in cases where the request is made several days in advance of the transfer date. Comments on the proposal will be accepted for sixty days following publication in the Federal Register.

    CFPB Dodd-Frank

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  • CFPB Holds Field Hearing on Payday Lending, Releases Payday Lending Exam Guide

    Consumer Finance

    On January 19, the CFPB held a field hearing in Birmingham, Alabama to discuss payday lending products. The hearing, which was the first such hearing held by the CFPB, included three panels featuring CFPB staff, consumer groups, and industry representatives. In conjunction with the event, the CFPB also released its “Short-Term, Small-Dollar Lending Procedures,” which is a field guide for use in examining bank and nonbank payday lenders. These procedures are structured to mirror payday lending activities ranging from initial advertising to collection practices. The CFPB will prioritize its supervision of payday lenders depending on the perceived risk to consumers, taking into account factors such as a lender’s volume of business and the extent of existing state oversight. In remarks at the event, Director Richard Cordray stated that there are some payday lenders and practices that deserve more urgent attention because they present immediate risk to consumers and are “clearly illegal.” The Director identified two examples of such practices, including (i) unauthorized debits on a consumer’s checking account that can occur when the consumer unknowingly “is dealing with several businesses hidden behind a payday loan,” any one of which could be a “fraudster” merely seeking the customer’s private financial information, and (ii) “aggressive debt collection tactics” including “posing as federal authorities, threatening borrowers with criminal prosecution, trying to garnish wages improperly, and harassing the borrower.”

    CFPB Payday Lending Nonbank Supervision

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  • DOJ Releases Memorandum on Legality of Recess Appointments

    Consumer Finance

    On January 12, the Department of Justice Office of Legal Counsel, which is responsible for providing legal advice to the President, released the memorandum it prepared in advance of the President’s recent decision to appoint Richard Cordray as CFPB Director. In short, the memorandum finds when the Senate is in a periodic pro forma session in which no business is to be conducted, the President may (i) conclude that the Senate is unavailable to perform its advise-and-consent function and (ii) exercise his power to make recess appointments. Pro forma sessions do not have the legal effect of interrupting an intrasession recess otherwise long enough to qualify as a "Recess of the Senate” under the Constitution. The conclusions are based on three considerations explored in detail in the memorandum: (i) the original understanding of the framers and the “longstanding views” of the executive and legislative branches with regard to the practical availability of the Senate to consider nominees, (ii) the inconsistent result of allowing pro forma sessions to prevent Presidential recess appointments given the purpose of the recess appointment clause and historical practice in similar situations, and (iii) the need to preserve constitutional separation of powers.


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