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Financial Services Law Insights and Observations


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  • CFPB Delays Prohibition on Financing Credit Insurance Fees


    On May 29, the CFPB issued a final rule to delay the effective date of a prohibition on creditors financing credit insurance premiums in connection with certain mortgage transactions. That prohibition, which is part of part of the CFPB’s mortgage loan originator compensation rule, was set to take effect on June 1, 2013. The CFPB has temporarily delayed that effective date until January 10, 2014 – the date on which the balance of the mortgage loan originator rule will take effect – to allow the CFPB to clarify the applicability of the prohibition to transactions other than those in which a lump-sum premium is added to the loan amount at closing. The CFPB plans to seek comment on the potential clarification and, at that time, will also solicit comment on an appropriate effective date.

    CFPB Mortgage Origination

  • Special Alert: CFPB Finalizes Amendments to the Ability-to-Repay/Qualified Mortgage Rule


    Yesterday afternoon, the Consumer Financial Protection Bureau ("Bureau") finalized important amendments (the "Amendments") to its ability-to-repay / qualified mortgage rule (the "Rule") concerning the extent to which loan originator compensation must be included as "points and fees" under the Rule.  The calculation of points and fees is a critical aspect of the Rule because a loan generally cannot be a "qualified mortgage" ("QM") - a designation that provides the lender with a degree of protection against asserted violations of the ability-to-repay requirements - if points and fees exceed 3% of the loan balance.  Furthermore, the same calculation method is used to determine whether points and fees exceed 5% of the loan balance for purposes of coverage under the Home Ownership and Equity Protection Act ("HOEPA").  The Amendments, which had been proposed concurrently with the Rule itself in January of this year (the "Concurrent Proposal"), address instances in which the Rule would have required lenders to "double count" payments of loan originator compensation as points and fees.

    Despite industry requests, the Amendments make no changes to the provision in the Rule requiring that many payments to creditor affiliates be included in points and fees.  In addition to points and fees, the Amendments address how "small creditors" can make QMs, and contain narrow exemptions from the Rule for certain types of creditors and for extensions of credit made pursuant to certain lending programs.  Like the Rule itself, the Amendments will take effect on January 10, 2014.  Concurrent with the Amendments, the Bureau delayed the effective date of a separate provision, which generally prohibits creditors from financing credit insurance premiums, from June 1, 2013 to January 10, 2014.

    Click here to read our analysis of the CFPB's amendments to the Ability-to-Repay/Qualified Mortgage Rule.

    CFPB Qualified Mortgage

  • House Democrats Raise Concerns about CFPB Auto Lending Enforcement

    Consumer Finance

    On May 28, a group of 13 Democratic Members of the House Financial Services Committee sent a letter to CFPB Director Richard Cordray seeking “any and all background information about . . . [the CFPB’s] investigation into alleged practices within the auto lending industry.” As has been reported, earlier this year the CFPB issued guidance to bank and nonbank indirect auto lenders about compliance with federal fair lending requirements, and the CFPB has spent the past several months implementing that guidance through supervision and examination of lenders. In particular, the CFPB is focused on the practice by which auto dealers “mark up” the indirect lender’s risk-based buy rate and receive compensation based on the increased interest revenues. In their letter to Director Cordray, the Members of Congress remind the Director that vehicle ownership can be critical to a consumer’s ability to obtain and maintain employment and find affordable housing, and raise concerns about the impact of the CFPB’s auto lending enforcement activity on consumers’ access to affordable credit for vehicle purchase. The Members ask the Director to provide specific information about allegations stemming from investigations of auto lenders and the methodology the CFPB is employing to determine whether fair lending violations exists. They also seek additional information about the CFPB’s compliance expectations for indirect auto lenders with regard to dealer compensation policies. The letter asks the CFPB to respond by June 7, 2013.

    CFPB Auto Finance Fair Lending ECOA U.S. House

  • CFPB, State Regulators Announce Supervision Framework

    Consumer Finance

    On May 21, the CFPB and the CSBS released an agreement to coordinate supervision of entities subject to concurrent jurisdiction of the CFPB and one or more state regulators. The Supervisory Coordination Framework is a nonbinding guide that builds off of the parties' 2011 Memorandum of Understanding, which has since been signed by 59 state regulators. The Framework establishes processes for information sharing, consulting on corrective actions, and coordinating exam schedules and supervisory plans. The Framework also includes a general process for resolving disputes between the CFPB and state regulators, and directs the parties to develop additional processes and procedures to ensure standardization and consistency in implementing the Framework.

    CFPB Nonbank Supervision Enforcement CSBS Bank Supervision

  • Maryland Creates State Law Violation of Federal Mortgage Assistance Relief Provisions


    On May 16, Maryland enacted HB 291, which makes it a violation of state law for a mortgage assistance relief service provider to violate federal mortgage relief regulations administered by the CFPB under Regulation O. The bill grants enforcement authority to the Commissioner of Financial Regulation and the Attorney General, and creates a private right of action for damages. The bill states that a violation of its provisions is an unfair or deceptive trade practice under the Maryland Consumer Protection Act and is subject to that Act’s civil and criminal penalty provisions. The bill takes effect on July 1, 2013.

    CFPB Mortgage Modification

  • CFPB Announces RESPA Action against Homebuilder


    On May 17, the CFPB announced an enforcement action against a homebuilder the CFPB alleges violated Section 8(a) of RESPA through joint venture arrangements. According to the CFPB, the homebuilder created two joint ventures, one with a state bank and the other with a nonbank mortgage company. The CFPB consent order alleges the homebuilder referred mortgage customers to the joint ventures in exchange for payments from those ventures, and that such payments violate RESPA’s prohibition on the acceptance of any fee, kickback, or thing of value in exchange for referral of customers for real estate settlement services. The homebuilder did not admit to the allegations, but agreed to disgorge over $100,000 and cease from performing any real estate settlement services, including mortgage origination. The CFPB investigation resulted from an FDIC referral. That agency issued an enforcement action in June 2012 against the state bank for related alleged activities.

    CFPB RESPA Enforcement Mortgage Origination

  • CFPB Clarifies 2013 Escrow Rule, Publishes Final List of Rural and Underserved Counties


    On May 16, the CFPB issued a final rule clarifying its January 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). The January 2013 rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The clarifying rule adopts the rule clarifications as proposed. The clarifying rule explains how a county’s rural and underserved status may be determined based on currently applicable Urban Influence Codes established by the Department of Agriculture, or based on HMDA data, and provides illustrations to facilitate compliance. With the clarifying rule, the CFPB posted on its website a final list of rural and underserved counties, for use with mortgages closed from June 1, 2013 through December 31, 2013. The list is identical to the preliminary list posted in March. Finally, the clarifying rule (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) establishes a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014.

    CFPB Mortgage Origination Escrow

  • CFPB Debuts Mortgage Rule Videos, Spanish Language Website


    On May 15, the CFPB announced a YouTube playlist, which includes seven videos that provide information about the mortgage rules the CFPB published earlier this year. The CFPB stated that the purpose of the videos is to provide an overview of the rules in a plain language format for use by a broad array of industry constituents, but cautioned that the videos are not a substitute for the rules themselves. Also on May 15, the CFPB announced a Spanish language website, with mobile capability, that provides access to CFPB resources, including information about how to submit a consumer complaint and answers to consumers’ frequently asked questions.

    CFPB Mortgage Origination Mortgage Servicing

  • Third Circuit Joins DC Circuit in Invalidating NLRB Recess Appointment

    Consumer Finance

    On May 16, the U.S. Court of Appeals for the Third Circuit held that an appointment to the National Labor Relations Board (NLRB) made by President Obama in March 2010 during a purported Senate recess was unconstitutional and vacated orders of the NLRB as constituted with the improperly appointed member. NLRB v. New Vista Nursing & Rehab., No. 11-3440, 2013 WL 2099742 (3rd Cir. May 16, 2013). The NLRB member appointment at issue in this case precedes the appointments at issue in Noel Canning, which appointments were made during the same pro forma Senate session in which President Obama appointed CFPB Director Richard Cordray. The D.C. Circuit’s opinion invalidating those appointments currently is on appeal to the Supreme Court. Here, as explained in the majority opinion and as in Noel Canning, the central question is the meaning of “the Recess of the Senate.” The court concluded that "the Recess of the Senate" in the Recess Appointments Clause refers to only intersession breaks, held that the NLRB panel lacked the requisite number of members to exercise its authority because one panel member was invalidly appointed during an intrasession break, and vacated the Board‘s orders. In a dissenting opinion, one judge argued that the majority holding undoes an appointments process that has successfully operated for over 220 years, and the court instead should have held that “the Recess” refers to both intrasession and intersession recesses because the Senate can be unavailable to provide advice and consent during both. The Third Circuit did not address whether the President may only fill vacancies that arise or begin during such intersession recesses, as opposed to vacancies that happen to exist during such recesses.

    CFPB Single-Director Structure

  • FTC Submits Financial Acts Enforcement Letter to CFPB

    Consumer Finance

    On May 14, the FTC released a letter it sent to the CFPB’s assistant directors for fair lending and supervision examinations describing activities related to the FTC’s administration and enforcement of the regulations implementing ECOA, EFTA, TILA, and the Consumer Leasing Act. The annual letter reviews the FTC’s post-Dodd-Frank Act responsibilities with regard to these regulations and reports on enforcement actions taken with regard to each. For example, with regard to TILA, the letter reviews FTC enforcement actions involving non-mortgage credit advertisements, mortgage lending advertisements, and forensic audit scams, and describes the FTC’s rulemaking and policy work related to the CFPB’s mortgage rules and in the area of mobile payments.

    CFPB FTC Dodd-Frank


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