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On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution.
Recently, Illinois, Massachusetts, Michigan, New Hampshire, Ohio, Oregon, and Rhode Island joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Illinois HB 4011, Massachusetts SB 452, Michigan SB 462, New Hampshire HB 610, Ohio HB 1, Oregon HB 2189, and Rhode Island SB 461 all require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. The Ohio, Oregon, and New Hampshire bills also amend certain statutory definitions and requirements applicable to mortgage lenders and mortgage brokers. Illinois HB 4011, Massachusetts SB 452 and Michigan SB 462 both became effective July 31, 2009, with the mortgage loan originator licensing provisions of each taking effect on July 31, 2010, or July 31, 2011, depending on certain factors. New Hampshire SB 610 and Oregon HB 2189, including the mortgage loan originator licensing provisions of each bill, became effective July 31, 2009. Rhode Island SB 461 became effective July 16, 2009, with the mortgage loan originator licensing provisions of the bill taking effect on July 31, 2009, or July 31, 2010, depending on whether the mortgage loan originator was actively licensed prior to the bill’s effective date. The relevant portion of Ohio HB 1 is effective January 1, 2010.
North Carolina and Pennsylvania recently joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). North Carolina HB 1523 and Pennsylvania HB 1654 require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. North Carolina HB 1523 became effective July 31, 2009, with mortgage loan originator licensure required by July 31, 2010 (for “exclusive mortgage brokers”) or by December 31, 2009 (for “limited loan officers”). Pennsylvania HB 1654 became effective immediately. Individuals not currently licensed as mortgage originators must file an application for a mortgage originator license by October 4, 2009 (60 days after the effective date). Mortgage originators previously licensed must complete the required education and testing requirements by December 31, 2009
Alabama Governor Robert Riley recently signed SB 90, a bill that enacts the “Alabama Uniform Real Property Electronic Recording Act.” SB 90 allows for (i) the electronic recording of documents that must otherwise, by law, be original, and (ii) the electronic signature of documents that must otherwise, by law, be signed, notarized, acknowledged, verified, witnessed, or made under oath. SB 90 also establishes the Alabama Electronic Recording Commission, which is authorized to adopt and enforce electronic recording and signature standards. The bill becomes effective January 1, 2010.
The Colorado Division of Real Estate recently adopted new rules relating to the business practices and licensing of mortgage loan originators. Among other items, the new rules (i) establish minimum surety bond requirements for licensees (Rule 1-2-2), (ii) set forth when the Division may inactivate a license (Rule 1-5-1), (iii) explain how and when a temporary license may be issued (Rule 1-1-2), (iv) clarify a licensee’s duties in connection with an investigation by the Division (Rule 3-1-2), (v) require that a licensee’s contact information and all other information required for licensing be kept current (Rule 3-1-3), (vi) identify disclosures to be provided by licensees to borrowers (Rule 5-1-2), (vii) set forth requirements applicable to transactions containing specific prepayment penalty terms (Rule 3-1-4), (viii) define compliance with the requirement that licensees maintain contracts with borrowers and mortgage lenders (Rule 5-1-1), and (ix) establish guidelines for licensee advertising (Rule 8-1-1). Additionally, Rule 3-1-1 explains how a licensee must comply with the “reasonable inquiry” and “net tangible benefit” requirements associated with the licensee’s duty of good faith and fair dealing in all communications and transactions with borrowers. Finally, Rule 1-2-1 repeals the surety bond requirement for mortgage brokers. Certain rules become effective August 30, 2009, while others become effective September 30, 2009.
Recently, Alaska, Florida, Maine, and Tennessee each signed into law legislation designed to meet the mandate of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of mortgage loan originators under the Nationwide Mortgage Licensing System (NMLS). Alaska HB 221 authorizes participation in the NMLS and allows for emergency regulations to further implement the legislation. Among other items, Florida SB 2226, Maine SB 523, and Tennessee SB 2279 each require mortgage loan originators to (i) submit to fingerprinting for the purpose of a criminal history background check, (ii) complete at least twenty hours of pre-licensing education, (iii) receive a passing score (i.e., 75%) on a qualified written test developed by the NMLS, and (iv) complete at least eight hours of continuing education annually. The Florida and Tennessee bills also amend certain definitions and licensing requirements applicable to mortgage lenders and mortgage brokers. Maine SB 523 also sets forth new requirements applicable to residential mortgage loans and higher-priced mortgage loans. Most provisions of Florida SB 2226 became effective July 1, 2009. The mortgage loan originator licensing provisions of Maine SB 523 become effective July 31, 2010. Most provisions of Tennessee SB 2279 become effective July 31, 2009. Alaska SB 221 is effective immediately.
On July 31, Illinois Governor Pat Quinn signed two bills (HB 3863 and HB 153) amending the Illinois Code of Civil Procedure in connection with residential property foreclosures. Among other things, HB 3863 requires certain entities - such as lenders acting in the capacity of a mortgagee in possession of REO - to (i) make a good faith effort to ascertain the identities and addresses of all known occupants of the property, and (ii) notify known occupants that such property has been acquired, as well as provide information about the new ownership and occupants’ rights. HB 3863 becomes effective 90 days after July 31. For a foreclosure action filed on or before the effective date of the amendments, the relevant entities will have an additional 60 days to comply with the new provisions. HB 153 requires any deed executed pursuant to the Mortgage Foreclosure Act (or similar judgment vesting title by a consent foreclosure) to state the grantee’s or mortgagee’s name, the name of a contact person, street and mailing address, and telephone number. HB 153 became effective July 31.
On July 27, North Carolina Governor Beverly Perdue signed SB 1017, an Act enhancing protections available to victims of identity theft. In general, the Act creates new legal obligations for credit reporting agencies (CRAs), creditors, businesses, and credit monitoring services. Under the Act, CRAs must notify a North Carolina consumer that requests a security freeze that such consumer must make separate, individual requests to CRAs regarding a security freeze because a freeze can only be placed on the files of the CRA to which the consumer directs a request. Additionally, the Act mandates that CRAs lower their response times to a consumer’s request to add or remove a freeze. Specifically, for written requests, CRAs must add or remove a freeze within three days. For electronic or telephonic requests, CRAs must add a freeze within 24 hours and must remove a freeze within 15 minutes. With respect to creditors, the Act prohibits any communication about a debt to a CRA during the pendency of a consumer’s application for an award from the North Carolina Crime Victims Compensation Fund. The Act also requires credit monitoring services to notify consumers that they have the right to one free credit report per year before charging the consumer a fee to obtain or monitor the consumer’s credit report on behalf of the consumer. The Act becomes effective October 1, 2009.
On July 10, in a 4-3 decision, the Pennsylvania Commonwealth Court upheld an interpretation of the Pennsylvania Consumer Discount Company Act (CDCA) that applied the law to companies with no physical presence in Pennsylvania. Cash Am. Net of Nev., LLC v. Dep’t of Banking, No. 8 M.D. 2009, 2009 WL 197499 (Pa. Commw. Ct. July 10, 2009). In July 2008, the Pennsylvania Department of Banking (Department) announced that, after more than 70 years of interpreting the requirements of the CDCA to apply only to Pennsylvania persons, all persons making non-mortgage consumer loans to Pennsylvania residents – whether or not those persons had any physical presence in Pennsylvania – would be required to comply with the requirements of the CDCA (reported in InfoBytes, Aug. 1, 2008). The CDCA limits the interest and fees a non-bank company can charge for non-mortgage loans of $25,000 or less. The petitioner, an online payday lender located in Nevada, sued the Department for a declaratory judgment, alleging that the new interpretation was both procedurally improper and substantively incorrect. The Commonwealth Court rejected both arguments. First, the court held that the new interpretation was merely a statement of policy, nonbinding on the courts or even the Department itself. Therefore, the policy did not need to be adopted through the procedures reserved for formal regulations. Second, the court held that the Department’s new interpretation of the reach of the CDCA “is the correct one,” even while acknowledging that “the Department formerly endorsed a contrary interpretation of that section.” Three judges joined in a dissenting opinion, which argued that the Department’s earlier interpretation of the limits of the CDCA was the correct one.
On July 9, Missouri Governor Jay Nixon signed HB 62, an omnibus crime bill containing a provision that requires companies to notify Missouri consumers regarding a security breach of personal information. The provision does not create a private right of action and instead grants the Missouri Attorney General exclusive authority to bring an action (for up to $150,000 per security breach) for an alleged violation of the provision. The provision becomes effective August 28, 2009.
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute