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CFPB Files Amicus in TILA Rescission Case
On March 27, the CFPB announced that it recently filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit in a case involving the Truth in Lending Act (TILA) right to rescind a transaction, Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.). The CFPB argued that borrowers who do not receive the material disclosures required by TILA can rescind the transaction as long as they notify the lender of the cancellation within three years of consummation, even if they do not file suit within the three-year period. The CFPB urged the Tenth Circuit to reject the view of the majority of courts that the borrower must both notify the lender and file suit within three years. Citing both the statute and the CFPB’s implementing Regulation Z, the CFPB argued that the holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), that the right to rescind expires completely after three years, simply means that “consumers [must] exercise their rescission right by providing notice to their lender within three years of obtaining the loan,” and that consumers could file suit after three years if the lender failed to honor the rescission notice. As an indication of the Bureau’s intense interest in this issue, it noted that it plans to file amicus briefs on the same question in at least three other circuits in which briefing is still pending.
Fannie Mae Reminds Servicers About Documentation Request Limits
On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.
FHFA IG Releases Results of Three Reviews
On March 22, the Office of Inspector General for the Federal Housing Finance Agency (FHFA IG) released the results of the following audit and surveys: (i) an audit of Fannie Maes single-family underwriting standards, (ii) a survey of FHFAs oversight of the charitable activities of Fannie Mae and Freddie Mac, and (iii) a survey of FHFAs oversight of Fannie Maes and Freddie Macs expenses related to the 2011 Mortgage Bankers Association Convention. The FHFA IG found that FHFAs oversight of Fannie Maes underwriting is limited, so FHFA should strengthen and formalize its processes for reviewing underwriting standards and variances. With regard to charitable contributions, the FHFA IG found that there is no need to conduct further evaluations because these contributions are scheduled to end by 2015. Similarly, the FHFA IG concluded that FHFAs new directive on conference sponsorships and expenditures for food will be sufficient if properly implemented.
FDIC Approves Proposed Rule to Amend Large Bank Pricing Assessment System
On March 20, the FDIC approved for publication a proposed rule to amend the large bank pricing assessment system to include revised definitions of nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans. A February 2011 FDIC rule, among other things, eliminated risk categories and the use of long-term debt issuer ratings and instead adopted scorecards that combine CAMELS ratings and certain forward-looking measures to assess risk posed by an institution to the FDIC insurance fund. One of the financial ratios used in the scorecards involves higher-risk assets, defined as the sum of construction and land development loans, leveraged loans, subprime loans, and nontraditional mortgage loans. The February rule used existing interagency guidance to define nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans, but refined the definitions to minimize reporting discrepancies. A subsequent FDIC notice added a requirement that covered institutions include nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans data in their Call Reports. However, institutions generally do not maintain data on those loans consistent with the definitions in the February rule, and therefore were not able comply with the reporting requirements. The proposed rule extensively revises these definitions to allow large banks to report the information needed to conduct the assessments.
Arizona Alters Financial Institution and Loan Originator Licensing Provisions
On March 16, Arizona enacted Senate Bill 1014, which make changes to fees and definitions affecting financial institutions. The new law sets a maximum fee of $250 that the Department of Financial Institutions (DFI) can charge to change the licensee name on a financial institution or enterprise license. The law tightens an exception to the definition of loan originator such that loan originators that originate five or fewer mortgage loans per calendar year are exempt only if the source of the prospective financing also makes five or fewer mortgage loans per calendar year. The new law now requires the Superintendent of the DFI to deny a license from an individual who (i) has been convicted of, pled guilty to, or pled no lo contere to a felony seven years prior to the application, (ii) has been convicted of, pled guilty to, or pled no lo contere to a felony involving fraud, dishonesty, a breach of trust, or money laundering at any time, or (iii) lacks the responsibility, experience, or competency to adequately serve the public. These changes take effect 90 days after the state legislature adjourns this year, which it is expected to do on or around April 17, 2012.
Eighth Circuit Limits Reach of FDCPA
On March 16, the U.S. Court of Appeals for the Eighth Circuit rejected a lawsuit under the Fair Debt Collection Practices Act (FDCPA) that was premised on pleadings filed in an unsuccessful state court collection action. Hemmingsen v. Messerli & Kramer, P.A., No. 11-2029, 2012 WL 878654 (8th Cir. Mar. 16, 2012). Plaintiff debtor successfully defended against a collection lawsuit in state court and thereafter commenced an FDCPA action for harassment, false or misleading representations in the state court action, and unfair practices. The claims were based upon defendant debt collection counsel’s summary judgment motion and supporting affidavit; the factual allegations in these documents were deemed unsupportable by the state court when it dismissed the collection lawsuit. A federal district court dismissed the FDCPA action on the ground that representations in the motion and affidavit in the collection action were made to the state court, and not to the plaintiff as required by the FDCPA. On appeal, the Eighth Circuit rejected this broad FDCPA defense and instead embraced a “case-by-case” approach. The court held that these particular FDCPA claims failed because evidence introduced in federal court provided some factual support for the pleadings filed in the state court action.
CFPB Submits First Annual FDCPA Report to Congress
On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act’s transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB’s FDCPA supervision authority, including its rulemaking to expand that authority by defining “larger participant” nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator’s FDCPA-related research and policy initiatives.
FDIC Approves Proposed Rule Regarding Enforcement of Subsidiary and Affiliate Contracts
On March 20, the FDIC approved for publication a proposed rule to implement new authorities granted by the Dodd-Frank Act that permit the FDIC, as receiver for a financial company whose failure would pose a significant risk to financial stability, to enforce certain contracts of subsidiaries and affiliates of the covered company. This proposed rule would include contracts that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered company, so long as the FDIC complies with statutory requirements. The proposed rule would apply broadly to all contracts and make clear that the FDIC’s authority as receiver effectively preserves contractual relationships of subsidiaries and affiliates during the liquidation process.
Wyoming Prohibits Private Transfer Fees
On March 15, Wyoming enacted House Bill 0025, which ends the use of private transfer fee obligations for a specified period. Pursuant to the law, new private transfer fee obligations—which require the payment of a fee upon the subsequent transfer of a real property—entered into between April 1, 2012 and July 1, 2014 are not enforceable against subsequent owners, purchasers, or mortgagees. To enforce a private transfer fee obligation created prior to April 1, 2012, the payee must record a notice in the county clerk’s office where the property is located. However, the law contains no prohibition of enforcement of private transfer fees absent the required recording. This law became effective March 15, 2012.
WSJ's Price-Change Clause Allows Company to Spin Off Barron's with Additional Charges
On March 12, the U.S. District Court for the Southern District of New York ruled that Dow Jones & Company Inc. did not engage in unfair business practices or breach its contract with customers when it spun off Barron’s and added an additional fee for continued access to the publication. Lebowitz v. Dow Jones & Co. Inc., No. 06-2198, 2012 WL 795525 (S.D.N.Y. Mar. 12, 2012). The Wall Street Journal Online subscriber agreement stated that Dow Jones could change or add charges by giving its customers advance notice. Dow Jones notified customers in December 2005 that as of January 2006 it would charge separately for online access to the Wall Street Journal and Barron’s, thereby requiring existing customers to pay an additional fee for access to both. Dow Jones announced the change using pop-ups on its Wall Street Journal and Barron’s sites, which the court held was sufficient notice under the contract. The court also held that Dow Jones’s right change the price did not make the contract illusory.