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Federal Court Approves Lender Settlement of TILA, UDAP Claims Based on HELOC Reductions
On March 15, the U.S. District Court for the Northern District of California approved a lender’s settlement with a class of borrowers who claimed that the bank suspended or reduced borrower home equity lines of credit (HELOCs) in violation of the Truth in Lending Act and California’s Unfair Competition Law. In Re Citibank HELOC Reduction Litig., No. 09-350 (N.D. Cal. Aug. 31, 2012). The borrowers claimed that the bank improperly utilized computerized automated valuation models (AVMs) as the basis for suspending or decreasing customer HELOCs because of the decline in the value of the underlying property. The complaint also charged that customers were injured because (i) the annual fee to maintain the HELOC was not adjusted to account for the decreased limit, and (ii) the borrowers’ credit ratings were damaged as a result of the reduced credit limit. The named plaintiff also alleged injury because he was forced to obtain a replacement home equity line, which resulted in payment of an early termination fee on the old HELOC and additional costs related to the new HELOC. Under the agreement, class members will have a right to request reinstatement of their HELOC accounts, the bank will expand the information contained in credit-line reduction notices based on collateral deterioration, and customers who incurred an early closure release fee when closing the account subsequent to the suspension or reduction may make a claim for the cash payment of $120. The court reduced the incentive payments owed to the six named plaintiffs by $1,000 each, but approved the proposed $1.2 million in attorneys’ fees.
OCC Requests Comment on Annual Stress Test Reporting
On March 15, the OCC requested comment on its new regulatory reporting requirement for national banks and federal savings associations, which the OCC adopted in an October 2012 final rule. The notice and request for information describes the proposed scope of the reporting and the proposed reporting requirements for covered institutions with consolidated assets between $10 and $50 billion. The OCC also released copies of the reporting templates and instructions referenced in the notice. Comments on the notice are due by May 10, 2013.
Report Blames Servicers for California Foreclosure Problems
Recently, a collection of community advocacy organizations released a report that attacks mortgage servicers for their handling of foreclosures in California. The report argues that foreclosures decrease the value of the foreclosed home, result in residual property value losses in the surrounding neighborhood, and rob governments of tax revenue as a result of the property depreciation. The report also reviews foreclosures in seven California jurisdictions and claims that foreclosure practices disproportionately impact minority neighborhoods. The groups advocate for servicers to halt foreclosures until they (i) commit to a broad principal reduction program and (ii) report data on principal reduction, short sales, and foreclosures by race, income, and zip code.
EU Parliament Approves Online Transaction Dispute Resolution Platform
On March 12, the European Commission announced that the European Parliament voted to support new legislation governing the out-of-court resolution of contractual disputes resulting from online transactions for the sale of goods or services, referred to as Online Dispute Resolution (ODR). The ODR legislation establishes a single EU-wide platform to handle disputes between traders and consumers arising from cross-border online transactions. The platform, which would not be applicable to offline transactions, will: (1) allow consumers and traders to electronically submit complaints related to online transactions along with related documents to an alternative dispute resolution entity; (2) allow alternative dispute resolution entities to receive and transmit information electronically; and (3) allow the parties to conduct and resolve the dispute resolution process via the platform. The platform is intended to be operational by 2015.
State Law Update: Idaho Amends Mortgage Licensing Provisions
On March 13, Idaho enacted HB 10, a bill to amend the licensing provisions of the Idaho Residential Mortgage Practices Act. The bill (i) provides a license exemption for individuals who originate mortgages on behalf of federal, state, or local government housing agencies, (ii) removes language inconsistent with federal interpretation of the SAFE Act relating to an exclusion from the definition of "mortgage loan originator," and (iii) makes it a prohibited practice for a person to violate license-related testing or education procedures. The bill also authorizes the director to subpoena records related to unlicensed activity by any person and also clarifies licensing exemptions for Idaho attorneys and accountants. By state rule, the law is set to take effect on July 1, 2013.
FHFA OIG Issues Report on Servicers' Borrower Complaint Handling
Today, the FHFA Office of Inspector General (OIG) issued a report on servicers’ handling of borrower complaints, following an audit to assess FHFA’s oversight of Freddie Mac’s controls over servicers’ handling of escalated cases. Under the Servicing Alignment Initiative (SAI), servicers are required to track the escalated cases they receive - specifically defined to include any of five categories of complaints - and resolve those cases within 30 days. In addition, Freddie Mac’s Servicing Guide requires servicers to report monthly on escalated cases status, including when received and how resolved. According to the report, the audit revealed that (i) most of Freddie Mac’s servicers are not complying with reporting requirements for escalated cases, (ii) Freddie Mac’s oversight of servicer compliance has been inadequate, and (iii) the FHFA did not identify the foregoing problems through its own examination of Freddie Mac’s implementation of the SAI. In response, the OIG recommends that FHFA (i) ensure that Freddie Mac requires its servicers to report, timely resolve, and accurately categorize escalated cases, (ii) ensure that Freddie Mac enhances its oversight of its servicers through testing servicer performance and establishing fines for noncompliance, and (iii) improve its oversight of Freddie Mac by developing and implementing examination guidance related to testing the implementation of directives. Following receipt of the report, House Oversight Committee Ranking Member Cummings (D-MD) called for a hearing on borrower complaint handling by servicers.
Special Alert: Report on 2013 NMLS Annual Conference
The Nationwide Mortgage Licensing System and Registry (NMLS) held its fifth annual NMLS User Conference and Training in San Antonio, Texas from February 26 through March 1, 2013. 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.
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 Timothy Siwy, Deputy Secretary of Non-Depository Institutions with the Pennsylvania Department of Banking, presided over the meeting, in which specific questions submitted by industry representatives were addressed. Several of the submitted questions focused on the new Uniform State Mortgage Loan Originator (MLO) Exam or Uniform State Test (the UST) of which 24 agencies have already adopted. Concerns were raised by the regulators as some state statutes require that a state’s specific laws be tested as a pre-requisite of MLO licensure. Others, such as regulators from California and Utah, had concerns that MLOs would not adequately learn state specific laws and regulations prior to licensure. In light of these concerns, industry representatives indicated that the UST is only the first step in licensure, and continuing education requirements, monitoring, and examinations would also serve as opportunities to ensure MLOs are well-versed in applicable state specific licensing laws and regulations.
Other areas of focus included NMLS’s expansion to include non-mortgage licenses, such as payday lender and pawn broker licenses. Some industry representatives voiced concern that approval of a license via the NMLS now carries with it an image of legitimacy with the public and expanding licensure to non-mortgage, less regulated industries could undermine that image. Regulators responded that the NMLS is a tracking mechanism—a way for regulators to track licensees state-to-state and industry-to-industry—not an independent licensing credential.
Full details regarding the specific issues submitted for comment, as well as accompanying exhibits, will be available on the NMLS Website, Ombudsman Page. 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 (please refer to the NMLS Conference Agenda, which also includes copies of presentations). Specifically, various sessions covered the following topics, among others:
- The collaboration of the CFPB and state regulators to level the playing field between banks and non-banks with respect to enforcing regulations and conducting examinations. David Liken, the Deputy Director of Supervision and Enforcement with the CFPB, explained that Dodd Frank contemplated a partnership between state regulators and the CFPB, which includes information sharing and joint examinations. The CFPB plans to provide state regulators with training conducted by CFPB personnel at no cost to state regulators.
- The future of the NMLS which includes a goal to initiate three system releases/ enhancements per year. 2013-2014 will include launching an advance change notice function, electronic surety bond management, and a requirement for annual volume reports for non-mortgage entities.
- The state of financial supervision, in particular, concerns about industry diversity and cooperation between state and federal agencies to leverage their resources to address emerging issues and trends in the financial market.
- Regulation of debt collectors as the “larger participant” rule giving the CFPB supervisory authority over debt collectors was issued in October 2012 and took effect on January 2, 2013. The CFPB has started looking at collection practices of creditors when the creditor collects in its own name and through third party collectors.
In addition, the Conference covered major changes to the NMLS and also included a presentation from the CFPB summarizing the CFPB’s final rules:
- Advance Change Notification—The NMLS will launch its Advance Change Notice functionality that will allow licensees to provide notice electronically to NMLS participating states of proposed changes to the company and its branches, including, but not limited to: name changes, address changes, and change of control. The initial roll out of this functionality is slated for June 2013.
- Money Services Regulator Panel—A Money Services Regulator Panel, which included Stephanie Newberg, Deputy Commissioner of the Texas Department of Banking, and Deb Bortner of the Washington Department of Financial Institutions, discussed the benefits and challenges associated with the addition of money services licenses to the NMLS. The NMLS has provided money services business with a streamlined system to apply for licenses and keep regulators updated on license changes; however, licensees continue to struggle with certain aspects of the system (e.g., transmission of materials via the NMLS and confusion with completing certain control person and direct and indirect owner forms, given varying state interpretations).
- The New System of Dual Regulatory Supervision—A panel, which included Charlie Fields, Director, Non-Depository Entities Division, North Carolina Office of the Commissioner of Banks, Calvin Hagins, Program Manager, Supervision, Fair Lending & Enforcement with the CFPB, and various industry representatives, discussed the coordinated efforts of state regulators and the CFPB to conduct licensee examinations. The panel focused on (1) examination selection criteria—i.e., how the Multi-State Examination Committee or CFPB may decide to examine an entity, (2) factors weighed by the Multi-State Examination Committee when deciding whether to join CFPB in an examination, (3) CFPB examination process—i.e., CFPB’s preference to collect date on-site while processing and analyzing data off-site, and (4) encouraging entities to engage in “self-regulation” and “self-review.”
- 2013 Mortgage Final Rules Overview—Kelly Thompson Chochran, Assistant Director for Regulations of the CFPB summarized several recently issued CFPB rules, which are expected to be implemented in the next year, including: the Ability-to-Repay / Qualified Mortgages Final Rule, the Mortgage Servicing Final Rule, and the Loan Originator Compensation, HOEPA, Escrows, and Appraisal Final Rule.
BuckleySandler recently issued detailed summaries of the CFPB rules.
For more information about NMLS, visit the NMLS Resource Center, About NMLS.
CFPB Proposes Rule to Supervise Nonbank Student Loan Servicers
On March 14, the CFPB proposed a rule to allow it to supervise “larger participant” nonbank student loan servicers. The CFPB has authority to supervise, regardless of size, nonbanks that originate private education loans, and can define and supervise larger participants in other markets for consumer financial products or services. The CFPB proposes to supervise any nonbank student loan servicer whose volume exceeds one million accounts, which the CFPB expects will cover the seven largest servicers. The CFPB’s test to determine volume would consider the number of accounts serviced, whether for federal or private loans, for which an entity and its affiliated companies were responsible as of December 31 of the prior calendar year. After designation, a servicer would remain a larger participant until two years after the first day of the tax year in which the servicer last met the account volume test. The CFPB would use its existing student loan examination procedures to review larger participants’ “student loan servicing,” which the proposed rule defines as: (i) collecting and processing loan payments on behalf of holders of promissory notes, (ii) maintaining account records and communicating with borrowers on behalf of loan holders during deferment periods, and (iii) interacting with borrowers to facilitate collection and processing of loan payments. An entity notified that the CFPB intends to undertake supervisory activity would have an opportunity to challenge the larger participant determination. The CFPB is accepting comments on the proposal for 60 days following publication in the Federal Register.
Federal Government Plans Appeal of Recess Appointment Ruling
On March 12, the National Labor Relations Board (NLRB) announced that it will seek, in consultation with the Department of Justice, U.S. Supreme Court review of the D.C. Circuit Court’s decision invalidating the appointment of certain NLRB members. On January 25, 2013, the U.S. Court of Appeals for the D.C. Circuit held that appointments to the NLRB made by President Obama in January 2012 during a purported Senate recess were unconstitutional. CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members, and his appointment is the subject of a lawsuit currently pending in the U.S. District Court for the District of Columbia. The NLRB’s petition is due on April 25, 2013.
CFPB Introduces Regional Directors
On March 12, the CFPB publicly introduced its four regional directors. Edwin Chow heads the West Region. He joined the CFPB in September 2010, bringing 26 years of experience with the Office of Thrift Supervision and its predecessor. The Midwest Region is led by Anthony Gibbs, who recently joined the CFPB after 19 years with a major bank. Steve Kaplan, a former Pennsylvania Secretary of Banking, leads the Northeast Region, and Jim Carley, previously at the division of banking regulation at the Federal Housing Finance Agency, heads the Southeast Region. The CFPB announced the directors as part of its push to hire more examiners for its field offices.