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  • 5 Tips to Prepare for New HMDA Reporting
    August 15, 2016
    Kathleen C. Ryan & Sherry-Maria Safchuk

    Last October, the Consumer Financial Protection Bureau published a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act. The CFPB drafted the amendments in response to specific congressional directives in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and under its discretionary authority to implement HMDA through Regulation C. Broadly, the new rules change:

    • Who must report HMDA data, by setting uniform loan-volume thresholds for depository and nondepository institutions, including thresholds for open-end lines of credit
    • The data elements that must be reported, by adding new data elements and modifying existing ones
    • What types of loans and applications (transactions) must be reported
    • When HMDA data must be submitted to the CFPB, for certain large-volume HMDA filers

    Given the magnitude of these changes to Regulation C, financial institutions should take steps now to ensure that they are prepared to submit accurate and complete HMDA data under the new rules. Violations of Regulation C can result in administrative sanctions, including fines and resubmission requirements. In addition, inaccurate HMDA data can also impair analyses of an institution’s performance under fair lending laws, including the Equal Credit Opportunity Act, the Fair Housing Act and the Community Reinvestment Act, which may negatively impact an institution.

    The following are five tips to consider when preparing for reporting under the new HMDA rule. Most of the CFPB’s changes to Regulation C take effect on Jan. 1, 2018, with certain exceptions, as discussed below.

    Tip 1 — Understand How the Effective Dates Work: The CFPB’s final rule contains several effective dates. Not only does an institution need to be aware of these dates, but it also needs to understand how the new rule will apply on each date so that it can plan and implement changes to systems, operations and training accordingly.

    • Jan. 1, 2017: Depository institutions with low-loan volumes in 2015 and 2016 will be excluded from HMDA’s coverage for 2017 and will not have to collect and report data for 2017.
    • Jan. 1, 2018: An institution covered by HMDA must collect and report the new and modified data points, and newly covered transactions, if the institution takes final action on the covered application, closed-end mortgage loan, or open-end line of credit on or after Jan. 1, 2018. Notably, however, an institution must not begin collecting information on ethnicity and race using the new HMDA rule’s expanded ethnicity and race subcategories until Jan. 1, 2018.
    • Jan. 1, 2020: Financial institutions with large HMDA filings must begin submitting their HMDA data on a quarterly basis in 2020. Such an institution will submit its data for a calendar quarter within 60 days of the end of the quarter, except for the fourth quarter — the institution will submit its data for that quarter by March 1 of the next calendar year with its annual report.

    As a result, institutions must be prepared to distinguish between loans for which the institution must comply with the 2017 requirements of HMDA as compared to the loans that must comply with the 2018 version of HMDA. This is especially important for the requirements that apply effective Jan. 1, 2018. Lenders are required to begin collecting, recording and reporting the new and modified data points for applications on which final action is taken on or after this implementation date. Therefore, an application for a home purchase in late November 2017 could close in December 2017 or January 2018. For such loans, lenders will need to be ready to collect the new data (with some exception as discussed above) and track the application to determine how it should report the information based on whether final action was taken in 2017 or 2018.

    Click here to read the full article at www.law360.com.

  • Corporations May Be People, But They Are Not Servicemembers
    August 7, 2016
    Valerie Hletko & Sasha Leonhardt

    The Servicemembers Civil Relief Act enables servicemembers “to devote their entire energy to the defense needs of the Nation” by deferring or suspending certain obligations during active duty and for certain periods after the end of active duty. The SCRA’s core protections include interest-rate reductions on certain credit obligations, and the prevention of foreclosure and repossession of certain property.

    Both federal regulators and individual plaintiffs have pushed to expand the SCRA’s protections to cover a broader range of obligations and liabilities. The business obligations of individual servicemembers is one area of increasing focus, as typified by a recent case, Davis v. City of Philadelphia. A servicemember attempted to reduce the risk of personal liability by transferring property to a corporation that he owned. He did not realize, however, that the transfer would operate to remove the property from potential future SCRA protections.

    The 3d U.S. Circuit Court of Appeals delivered the first appellate opinion on the issue, affirming a district court’s order dismissing the case and holding that SCRA protections do not attach to property owned by a corporation — and provided much-needed guidance on the limits of the SCRA’s reach.

    Michael Davis and his wife attempted to “insulate themselves from liability” by transferring full ownership of their rental property to Global Sales Call Center, a Pennsylvania corporation solely owned and managed by Davis. In 2009, after several periods of military service, Davis requested that the Philadelphia Department of Revenue reduce the interest accruing on Global’s property tax debt under the SCRA because Davis was a servicemember.

    The city department denied Davis’s request on the basis that Global was a corporation and not a servicemember entitled to the SCRA’s benefits and protections. Davis’ ownership of Global did not change the analysis. Davis, at the direction of the revenue department, filed a tax abatement petition with the Philadelphia Tax Review Board in 2010, requesting a recalculation of the interest and penalties against his property. The Review Board agreed with the revenue department and denied Davis’s petition.

    Originally published in Consumer Financial Services Law Report; reprinted with permission.

  • FinCEN’s Lack of Policies and Procedures for Assessing Civil Money Penalties In Need of Reform
    July 25, 2016
    Robert B. Serino

    In remembrance of Bob Serino and his many contributions to both the field of banking law and the financial services community, the ABA Banking Law Committee would like to honor his accomplishments and rich life and career. After a long illness, Bob recently passed away while this article was pending publication.

    There are few in our profession so universally liked and respected as Bob. His long career at the Office of the Comptroller of the Currency (OCC) made a lasting mark. He set up the OCC’s first formal enforcement office, pioneered anti-money laundering enforcement, and served for many years as deputy chief counsel. When he left the agency, he established the OCC Alumni Association, which last year was renamed the Robert Serino OCC Alumni Association. Bob subsequently joined BuckleySandler LLP, where he was a partner. He also served as a captain in the U.S. Navy Reserves.

    What engaged Bob most was connecting with other people. He mentored many young lawyers and gave generously of his time and advice to colleagues. He knew how to nurture a friendship and had a wide circle of friends and colleagues, all of whom will deeply miss him.

    For many years, federal banking agencies have used publicly available processes, procedures, and matrices to determine both whether a Civil Money Penalty (CMP) is justified and, if so, the size of the penalty. Most recently, on February 26, 2016, the OCC published a revised Policies and Procedures Manual “to ensure the statutory and 1998 FFIEC Interagency Policy factors are considered in CMP decisions, and to enhance the consistency of CMP decisions.”

    In contrast, the Financial Crimes Enforcement Network (FinCEN) has no publicly disclosed CMP matrix or procedures to determine either a penalty is warranted or, if so, the appropriate amount. Thus, there is no publicly known process in place to ensure that FinCEN’s vast power is applied consistently and equitably. There is an urgent need for FinCEN to bring its CMP assessment process into alignment with other regulators.

    Banks, Bank Secrecy Act officers, and other institution-affiliated parties live under constant threat of a FinCEN CMP, yet have no inkling whether they are, in fact, at risk and the extent of the risk. The agency’s reluctance to publish its CMP standards and procedures perpetuates banks’ and other regulated entities’ perceived lack of due process. Moreover, the uncertainty created by FinCEN’s opacity is causing havoc among compliance officers. FinCEN’s failure to act contributes to the exodus of compliance officers who face a high degree of uncertainty because of the lack of guidance on whether they may be subject to a FinCEN CMP and the amount of the penalty. Lalita Clozel,Exodus of Compliance Officers Seen if NY Plan Goes Through, American Banker, Feb. 24, 2016 (discussing potential effects on compliance officers if New York implements regulation requiring compliance officers to certify compliance with bank secrecy laws with the threat of criminal action if a problem arises); Jerry Buckley, The Compliance Officers Bill of Rights, American Banker, Feb. 22, 2016 discussing concerns of compliance officers and need to establish protections for them so that they can perform their duties in good faith and without fear of the unknown).To illustrate, in December 2014, FinCEN assessed a $1 million civil money penalty against the chief compliance officer/senior vice president of government affairs at a major money transmitter. And in January 2016, a U.S. district court ruled that the corporate officers could be held personally liable for Bank Secrecy Act compliance failures.

    Click here to read the full article at www.americanbar.org.

  • Mortgage Industry Struggles to Avoid Vendor Management Land Mines
    July 11, 2016
    Elizabeth E. McGinn & Moorari K. Shah

    October 3, 2015, marked the official effective date of the long-anticipated, and widely dreaded, TILA-RESPA Integrated Disclosure (TRID) rule. Mortgage professionals have learned from a half-decade deluge of regulation that their TRID fate, along with almost every other aspect of the industry’s ability to comply with the new regulatory regime, lies largely in the hands of third-party vendors.

    Vendors ranging from independent mortgage brokers to disclosure preparation companies to settlement service providers span the entire origination process. In a rare acknowledgement of the problems associated with unreliable vendors, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray told an audience of mortgage bankers just two weeks into the TRID rule’s existence:

    ‘‘Some vendors performed poorly in getting their work done in a timely manner, and they unfairly put many of you on the spot with changes at the last minute or even past the due date. It may well be that all of the financial regulators, including the [CFPB], need to devote greater attention to the unsatisfactory performance of these vendors and how they are affecting the financial marketplace.’’

    Cordray’s remarks ultimately provide little comfort to mortgage lenders that must bear responsibility for vendors who fail to individually and collectively maneuver around TRID’s many land mines. In that regard, the TRID rule is no different than any other industryshifting paradigm advanced by the Bureau in its short but notable five-year reign.

    Considerable investments to absorb and adjust to new laws and regulations have not altered the reality that coordinating the efforts of vendors will continue to determine whether the mortgage industry can ever conquer the heavy compliance burden it now faces. Along with vendor management concerns arising under the TRID rule, this article explores a number of mortgage industry challenges related to vendor management that have been the focus of intense CFPB enforcement efforts during the past year and are likely to continue into the foreseeable future.

    Back to the Future

    Throughout its existence, the CFPB’s vendor management arsenal has had a familiar tendency, consisting mostly of (1) ominous guidance bulletins, (2) invective-laden enforcement actions, and (3) cryptic signals of future enforcement. In so doing, CFPB regulators have honed in on long-standing compliance pressure points involving third parties, including marketing services agreements (MSAs), deceptive advertising of ancillary products, and prohibited loan originator compensation. In addition, a number of multi-party transactions, such as the delicate relationships among lenders, appraisal management companies (AMCs) and independent appraisers, figure to result in almost certain vendor management enforcement in the post-TRID era.

    To be sure, other federal agencies such as the Federal Reserve Board (Fed) and the Office of the Comptroller of the Currency (OCC) have more modestly echoed the CFPB’s warnings with respect to vendor relationships, and many in the mortgage industry have heeded the regulators’ calls and wisely redoubled their efforts with respect to vendor management.

    The efforts have resulted in, among other improvements, robust policies and procedures that cover vendor selection, contract negotiation and ongoing monitoring, as well as compliance training for everyone from the board of directors and senior management down to line-level employees. Nonetheless, whether because of the TRID rule or otherwise, many mortgage companies continue to grapple with fundamental changes to—and in some cases elimination of—age-old industry conventions.

    Originally published in Bloomberg BNA; reprinted with permission.

  • Fate Of Municipal-Plaintiff FHA Suits In Justices' Hands
    June 28, 2016
    Mark Rooney

    The U.S. Supreme Court on Tuesday announced it will hear an appeal by two banks in a case that could define the reach of mortgage discrimination lawsuits under the Fair Housing Act. Bank of America and Wells Fargo are challenging the city of Miami’s lawsuit seeking to hold the banks responsible for allegedly discriminatory mortgage practices dating back to the subprime boom which, the city claims, resulted in a raft of foreclosures, in turn causing them to lose property tax revenue and incur out-of-pocket costs associated with municipal services rendered at vacant properties. The banks argue that the municipality is not an “aggrieved person” under the law — both because reduced tax receipts and municipal expenditures are not within the “zone of interests” Congress sought to protect in enacting the FHA, and because the city’s injuries, if any, were not caused by any alleged discriminatory conduct.

    The court’s eventual ruling could provide some much-needed clarity to lower courts wrestling with standing issues in FHA cases. Across the country, at least eight different municipalities are pursuing substantially similar cases against bank defendants. The decision to review City of Miami also comes just one year after the court decided Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc., 135 S. Ct. 2507 (2015), holding that claims under a disparate impact theory of liability are allowed under the Fair Housing Act, subject to a “robust causality requirement” at the pleading stage. The City of Miami case could provide more nuanced guidance on the causality requirements in pleading an FHA claim, and will be a key case to watch in the Supreme Court’s 2016 term.

    Originally published in Law360; reprinted with permission. 

Knowledge + Insights

  • Special Alert: Department of Defense Issues Interpretive Rule Regarding Compliance with the Military Lending Act
    August 26, 2016

    Today, the Department of Defense (“DoD” or “Department”) published in the Federal Register an interpretive rule regarding compliance with its July 2015 amendments to the regulations implementing the Military Lending Act (“MLA”). The July 2015 amendments will extend the MLA’s 36% military annual percentage rate (“MAPR”) cap, ban on mandatory arbitration, and other limitations to a wider range of credit products—including open-end credit—offered or extended to active duty service members and their dependents (“covered borrowers”). Compliance is mandatory beginning on October 3, 2016, except that credit card issuers have until October 3, 2017 to comply. Additional BuckleySandler materials on the MLA amendments are available here, here, and here.

    DoD stated that the interpretive rule “does not substantively change the [July 2015] regulation implementing the MLA, but rather merely states the Department’s preexisting interpretations of an existing regulation” and thus is effective immediately upon publication. The DoD also emphasized that the guidance provided in the rule “represent[s] official interpretations of the Department….”

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: CFPB Finalizes Amendments to Mortgage Servicing Rules
    August 9, 2016

    On Thursday, the CFPB issued its long-awaited final amendments to the mortgage servicing provisions of Regulations X and Z. The Bureau had sought comment on the proposed rule in December 2014, more than 18 months ago. Spanning 900 pages, the final rule makes significant changes that will impact servicers even as it clarifies several points of confusion with the existing regulations. Most significantly, the amendments extend existing protections to successors in interest and borrowers who have previously been evaluated for loss mitigation under the rules, brought their loans current, and then experienced new delinquencies. The amendments also require servicers to provide modified periodic statements to borrowers in bankruptcy. In coordination with the final amendments, the Bureau published an interpretive rule under the Fair Debt Collections Practices Act (FDCPA) to address industry concerns about conflicts with the servicing rules.

    A summary of the key amendments is provided below. Unless otherwise stated below, the amendments take effect 12 months from the date of publication of the rule in the Federal Register, which has not yet occurred. If recent experience is any guide, we anticipate that publication in the Federal Register may be delayed for as long as a month, given the length of the final rule, commentary, and preamble.

    Please join BuckleySandler attorneys Ben Olson, Michelle Rogers and Kitty Ryan for a webinar on September 7 to further discuss the amended rules and their compliance, examination and enforcement implications. Invitation and registration information to follow.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: CFPB Proposes Amendments to Know Before You Owe/TRID Rule
    August 3, 2016

    On Friday, the CFPB issued its much anticipated proposal to amend the KBYO/TRID rule. The CFPB crowded dozens of proposed changes into the almost 300 page proposal, most of which are highly technical and require careful examination. As the Bureau has signaled since its intention to issue amendments was first announced, the proposal is not intended “to revisit major policy decisions” because “[t]he Bureau is reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after the October 2015 effective date or to otherwise distract from industry’s intense and very productive efforts to resolve outstanding implementation issues.” However, it has “proposed a handful of substantive changes where it has identified a potential discrete solution to a specific implementation challenge.”

    If finalized, the amendments should resolve a number of significant ambiguities that have generated concerns about the liability of lenders and purchasers of mortgage loans and hampered loan sales, particularly the so-called “Black Hole” that can arise when closing is unexpectedly delayed. However, because it is unclear in most cases whether the Bureau intends the amendments to apply only prospectively and because the amendments would not alter the provisions for “curing” errors, these liability concerns will remain for loans originated prior to the effective date of the amendments. Furthermore, because the industry has been forced to make loans since October 2015 despite these ambiguities, it will be necessary in many cases to revise existing systems and practices to comply with the amended rule. Finally, in some cases, the Bureau seems to have gone beyond resolving ambiguities and is instead seeking to make targeted policy changes to the rule.

    Although the proposed amendments are too voluminous and technical to be summarized comprehensively, we have highlighted a number of the more significant proposed changes below. Note that the CFPB specifically requested feedback on a number of the issues addressed in the proposal. Comments are due on or before October 18, 2016.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: CFPB Releases Outline of Proposed Rule for Third Party Debt Collectors
    August 2, 2016

    On July 28, the CFPB announced that it is considering proposing a rule to “overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.” The CFPB released several related documents, including a report on third-party debt collection operations and an outline of the proposal (the “Outline”) that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule. A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.

    While the CFPB’s earlier Advanced Notice of Proposed Rulemaking posed questions regarding collections by creditors and first party collectors, the Outline only addresses proposals for third party collectors (i.e., collectors operating in their own name when collecting on behalf of others including debt buyers and collection law firms). Based on remarks by Director Cordray, the CFPB is expected to address first party collections separately. That said, in practical terms the outline in effect would impose certain new compliance obligations on creditors.

    The Outline’s proposals for third party collections notably include (i) requirements to obtain and review information substantiating consumer debts to be collected; (ii) requirements regarding the transfer of information when consumer debts are transferred; (iii) revisions and additions to the debt validation notice; (iv) required disclosures when collection communications are made in connection with time-barred debt (as well as a prohibition on filing suit in connection with time-barred debt); and (v) limits to the contacts and contact attempts made in connection with a debt. These and other requirements proposed in the Outline are discussed further below.

    Click here to view the full Special Alert.


    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: Maryland Ruling Opens New Front in Battle Over Bank Partnership Model
    July 22, 2016

    On June 23, the Maryland Court of Appeals affirmed a lower court judgment holding that a non-bank entity assisting consumers obtain loans from an out-of-state bank and then repurchasing those loans days later qualifies as a “credit service business” under the Maryland Credit Services Business Act (MCSBA), requiring a state license among other obligations. CashCall v. Md. Com’r of Financial Reg., No. 24-C-12-007787, 2016 WL 3443971 (Md. Ct. App. June 23, 2016). This holding is of particular importance to marketplace lending platforms that rely on bank partnerships to originate consumer loans because, in addition to requiring a license, the MCSBA prohibits licensees from arranging loans for out-of-state banks above Maryland’s usury ceiling.

    In light of the ruling, the MCSBA could provide a roadmap for other states to test the limits of federal law, which specifically authorizes banks to export interest rates permitted by their home state notwithstanding another state’s usury limitations. Perhaps in view of a potential future challenge on federal preemption grounds, the CashCall Court appears to have gone out of its way to state in dictum that the non-bank entity was the “de facto lender” based on its efforts to market, facilitate, and ultimately acquire the loans it arranged. In so doing, the Court provides a strong suggestion that it might have reached the same result relative to the state’s usury laws under the “true lender” theory that has gained some traction in other actions against non-bank entities.

    While the most immediate impact of the Court’s ruling is to uphold the state financial regulator’s cease and desist order and $5.65 million civil penalty, the case also creates additional risk and uncertainty for marketplace lending platforms and other FinTech companies seeking to maintain a regulatory safe harbor through the bank partner model. We analyze here the import of this latest case as part of the appreciable tension building as state law theories appear to be increasingly penetrating chinks in the armor of federal preemption principles.

    Click here to view the full Special Alert. 

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    Join BuckleySandler attorneys on August 11, 2016 from 2:00-3:00pm ET for a discussion on recent developments related to partnerships between banks and alternative lenders. The lower costs, simpler products, and consumer convenience ushered in by digital lending means it is here to stay. But regulatory turbulence suggests that some mid-course corrections may be required. After a year of historic growth in 2015, the first half of 2016 has seen a series of potentially game-changing events for the marketplace lending industry, including the Supreme Court’s decision not to consider an appeal from the Second Circuit’s ruling in Madden v. Midland Funding, LLC. We will review the implications of Madden and several other recent court decisions and regulatory actions as they relate to federal preemption, “true lender” challenges, state licensing requirements, and other issues.

    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.