InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Additional State AGs Join Challenge to Dodd-Frank Act Provisions
On February 13, the plaintiffs in a case challenging portions of the Dodd-Frank Act sought leave to file a second amended complaint to add as plaintiffs the state attorneys general (AGs) of Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas, and West Virginia. Motion for Leave to File Second Amended Complaint, State Nat'l Bank of Big Spring v. Wolin, No 12-1032 (D.D.C., filed Feb. 13, 2013). The new state AGs join the AGs of Michigan, Oklahoma, and South Carolina, who previously joined the suit and claim that the "orderly liquidation authority" (OLA) for financial institutions provided to the Treasury Secretary by the Dodd-Frank Act violates the separation of powers doctrine, as well as the Fifth Amendment's bar against the taking of property without due process. The case also involves private party plaintiffs who, in addition to challenging the OLA, challenge as unconstitutional (i) the formation and operation of the CFPB, (ii) the appointment of CFPB Director Richard Cordray, and (iii) the operation of the Financial Stability Oversight Council. The plaintiffs were due to respond to a pending government motion to dismiss, but asked the court to stay briefing on that motion pending resolution of the motion to file a second amended complaint.
CFPB Schedules Consumer Advisory Board Meeting
On February 12, the CFPB announced that its Consumer Advisory Board will meet on February 20, 2013 in Washington, DC. The portion of the event open to the public will feature remarks from Director Cordray, Associate Director Zixta Martinez, and Consumer Advisory Board Chairman Jose Quinonez. The balance of the event is private, and the agenda includes (i) a presentation by the CFPB's Supervision Office, (ii) breakout sessions with various CFPB offices, including the Office of Fair Lending, and (iii) a review of recently issued mortgage rules and implementation plans. Members of the public that would like to attend the portion of the event open to the public must RSVP.
CFPB Releases First MOU with Tribal Government
On February 12, the CFPB released a memorandum of understanding (MOU) it entered into last month with the Navajo Nation Department of Justice, pursuant to which the parties will share information. The MOU provides for confidential treatment and protection from FOIA disclosure of Navajo Nation documents and information provided to the CFPB, and establishes a framework pursuant to which the Navajo Nation can seek information from the CFPB. Notably, nearly a year ago, in remarks to state attorneys general, CFPB Director Richard Cordray stated the CFPB's intent to focus on payday lenders associated with Native American tribes. The MOU could facilitate the CFPB's efforts to pursue such lenders.
CFPB Announces Plan for Mortgage Rule Implementation
On February 13, the CFPB announced a plan to implement its recently adopted mortgage rules, which go into effect in January 2014. To assist financial institutions with implementing the rules, the CFPB will (i) coordinate with other agencies that conduct examinations of mortgage companies to ensure all regulators have a shared understanding of the CFPB's new rules, (ii) publish plain-language guides in the spring, (iii) publish updates to the official interpretations, with priority given to issues that are important to a large number of providers or consumers, and that critically affect mortgage companies' implementation decisions, (iv) publish readiness guides, available this summer, and (v) work with the FFIEC to develop more in-depth examination procedures.
CFPB Plans Heightened Scrutiny of Mortgage Servicing Transfers
On February 11, the CFPB issued Bulletin 2013-01 to address concerns about "potential risks to consumers" posed by the increased number and size of recent servicing transfers between financial institutions. The guidance states that the CFPB generally will examine such transfers to determine compliance with consumer finance laws, but examiners also will focus on (i) how a transferor has prepared for the transfer of servicing rights, (ii) how a transferee handles the files transferred to it, and (iii) the policies and procedures adopted with regard to transferred loans with loss mitigation in process. The CFPB also plans to require, in appropriate cases, servicers engaged in "significant servicing transfers" to submit written plans detailing how the parties to a transfer will manage consumer risks, and information including: (i) the number of loans involved, (ii) the total servicing volume being transferred, (iii) the name(s) of the servicing platform(s) on which the transferor stored account-level information for transferred loans prior to transfer and information about compatibility with the transferee's systems, (iv) a detailed description of the transaction and system testing to be conducted to ensure accurate transfer of electronic information and a description of the summary report to be generated as a result of this testing, (v) a description of how the transferee will identify and correct errors identified in connection with the transfer, (vi) a description of the training plan and actual training materials for staff involved in reviewing, assessing, utilizing, or communicating information regarding the transferred loans, and (vii) a customer-service plan for responding to loss mitigation inquiries and identifying whether a loan is subject to a pending loss mitigation resolution or application. Servicers will not need CFPB approval of such plans prior to completing a transfer. Finally, the Bulletin offers guidance regarding policies and procedures to comply with the transfer-related aspects of CFPB's recently-issued servicing rules, which become effective on January 14, 2014.
Special Alert: Detailed Analysis of CFPB's Final Escrow Rule
On January 10, 2013, the Consumer Financial Protection Bureau issued its final rule on escrow account requirements for first-lien higher-priced mortgage loans. The rule amends existing escrow requirements and exemptions for such loans by, among other things, extending the required period of time during which escrow accounts must be maintained from one to five years, and creating a new exemption for small creditors that operate predominantly in rural or underserved areas. This Alert provides a detailed summary and analysis of the rule, which becomes effective June 1, 2013 and applies to loans for which creditors receive applications on or after this date. Click here to download our detailed analysis of CFPB's Final Escrow Rule.
CFPB Partners with Newark on Consumer Complaint Hotline
On February 7, the CFPB announced that, through a pilot partnership with Newark, New Jersey, the CFPB will accept and respond to questions and complaints about financial products and services posed directly to the Bureau by local residents. The agreement will allow Newark consumers to dial a local hotline and be connected with the Consumer Response team, which will screen complaints for completeness, jurisdiction, and non-duplication. As with consumer complaints submitted to the CFPB through other channels, hotline complaints from Newark residents that meet the initial screening criteria will be sent to the subject company for review. These companies are expected to respond within 15 days, and to close most complaints within 60 days. Consumers lodging a complaint via the hotline can log into the CFPB’s website to check the status of their complaint and to provide feedback about the company’s response. The CFPB currently is accepting complaints regarding credit cards, mortgages, deposit products and services, consumer loans, student loans, and credit reporting.
Third Circuit Holds Notice Sufficient to Preserve Borrower's Three-Year TILA Rescission Right
On February 5, the U.S. Court of Appeals for the Third Circuit held that a borrower need only provide written notice of intent to rescind a loan within the statutory three-year rescission period to preserve that right; a borrower need not also file a complaint within the three-year period. Sherzer v. Homestar Mortg. Servs., No. 11-4254, 2013 WL 425835 (3rd Cir. Feb. 5, 2013). TILA allows borrowers three years to rescind a loan if the lender fails to provide certain required disclosures. In this case, counsel to the borrowers—who had obtained two mortgage loans from two different lenders—sent a letter to the lenders within three years of the closing date asserting that the lenders materially violated TILA by failing to provide certain disclosures. The letter also notified the lenders that the borrowers were exercising their right to rescind the loans. When the lenders refused to rescind one of the loans, the borrowers filed suit more than three years after closing. On appeal, the court reversed the district court, which had dismissed the borrowers’ rescission claims as untimely. The Third Circuit instead held that (i) nothing in the language of the statute (or its implementing regulation) requires the filing of a court action to invoke the right to rescind, and (ii) valid written notice of rescission within the three-year period is sufficient. The court acknowledged concerns about the practical impacts of such a holding on lenders, but stated it was constrained by the statute’s text. In so holding, the Third Circuit agreed with the position advocated by the CFPB and already adopted by the Fourth Circuit, but split from the Ninth and Tenth Circuits, which have held that a borrower must file a complaint within the three-year period to properly exercise the rescission right. The same issue remains pending in the Eighth Circuit.
Republican Senators Reiterate Opposition to CFPB Nomination, Demand Structural Reforms
On February 1, Republican Senators sent a letter to President Obama to reaffirm their position that the CFPB lacks transparency and accountability, and that until structural reforms are implemented, the 43 signatories will continue to block consideration of any nominee for CFPB director. Specifically, the letter states that (i) the CFPB director-led structure should be replaced by a bipartisan board of directors, (ii) the CFPB should be subject to the annual congressional appropriations process, and (iii) prudential regulators should be empowered to serve as a safety and soundness check to CFPB actions. Also on February 1, Senator Rob Portman (R-OH), who opted not to sign the letter to President Obama, sent a separate letter to CFPB Director Cordray to highlight the “commonsense reforms” to the CFPB that the two previously have discussed, including a change in the CFPB’s governance structure. The letter states that Mr. Cordray “noted…leadership by a bipartisan board provides some stability and continuity in regulation over time.” On February 7, Senator Portman reportedly is aiming to serve as a liaison between the White House and congressional Republicans on Mr. Cordray’s pending nomination and potential CFPB reforms. The only other Republican Senator not to sign the letter to President Obama was Senator Bob Corker (R-TN).
Special Alert: Detailed Analysis of CFPB's Mortgage Servicing Rules
On January 17, the CFPB issued final rules amending Regulation Z (TILA) and Regulation X (RESPA) to implement certain mortgage servicing standards set forth by the Dodd-Frank Act and to address other issues identified by the CFPB. The rule amending Regulation Z includes changes to (i) periodic billing statement requirements, (ii) notices about adjustable rate mortgage interest rate adjustments, and (iii) rules on payment crediting and payoff statements. The rule amending Regulation X addresses (i) force-placed insurance requirements, (ii) error resolution and information request procedures, (iii) information management policies and procedures, (iv) standards for early intervention with delinquent borrowers, (v) rules for contact with delinquent borrowers, and (vi) enhanced loss mitigation procedures. This Alert includes a detailed analysis of these nine topics and also provides links to each of the model forms amended or added by the rule. For ease of reference, this Alert contains a detailed, hyper-linked table of contents. Click here to download our detailed analysis of CFPB's Mortgage Servicing Rules.