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On October 30, the U.S. Attorney for the Middle District of Florida filed a lawsuit against a Florida legal services provider and two of its officers (defendants) for allegedly violating the Fair Housing Act by “intentionally discriminating against Hispanic homeowners by targeting them with a predatory mortgage loan modification and foreclosure rescue services scheme.” Specifically, the complaint alleges that the defendants, among other things, (i) targeted borrowers through the use of Spanish-language advertisements that allegedly promised to cut mortgage payments in half; (ii) promised payments would be lowered “in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550,” without delivering the promised loan modifications; (iii) instructed borrowers to stop making monthly mortgage payments and to stop communicating with their lenders; and (iv) had borrowers sign English-language contracts while only translating the provisions regarding payment. The complaint seeks to enjoin the defendants from participating in discriminatory activities on the basis of national origin, and requests monetary damages and civil penalties.
On October 29, the FTC announced a settlement with an online student loan refinance lender resolving allegations the lender violated the FTC Act by misrepresenting in television, print, and internet advertisements how much money student loan borrowers can save from refinancing their loans with the company. The complaint alleges that the lender inflated the average savings consumers have achieved refinancing through the lender, in some instances doubling the average savings by selectively excluding certain groups of consumers from the data. The complaint also alleges that in some instances, the lender’s webpage misrepresented instances where a loan option would result in the consumer paying more on a monthly basis or over the lifetime of the loan, simply stating the savings would be “0.00.” Although the lender did not admit or deny any of the allegations, it agreed to a consent order that requires it to cease the alleged misrepresentations and agree to certain compliance monitoring and recordkeeping requirements.
Notably, Commissioner Rohit Chopra issued a concurring statement in this matter suggesting that in instances where the FTC is unable to obtain monetary remedies, it should seek to partner with other enforcement agencies that have the additional legal authority to obtain monetary settlements from the targets of the FTC enforcement action.
New York City Department of Consumer Affairs sues for-profit college for deceptive and predatory lending practices
On October 19, New York City Department of Consumer Affairs (DCA) announced that it filed suit in New York County Supreme Court against a for-profit college alleging deceptive and predatory lending practices that violate NYC Consumer Protection Law and local debt collection rules. The DCA alleges that college recruiters engaged in deceptive practices such as (i) masquerading federal loan applications as scholarships; (ii) steering students towards college loans and referring to them as “payment plans”; and (iii) deceiving students about institutional grants by failing to disclose that they require students to obtain the maximum amount of federal loans available before a grant can be awarded. DCA also alleges that the for-profit college violated debt collection laws by concealing its identity on invoices when collecting debt, and seeking payments from graduates for debts not owed.
FHFA launches clearinghouse for mortgage industry to assist borrowers with limited English proficiency
On October 15, the Federal Housing Finance Agency (FHFA), Freddie Mac, and Fannie Mae announced the joint launch of the Mortgage Translations clearinghouse, a collection of online resources designed to help lenders and servicers assist borrowers with limited English proficiency. The clearinghouse currently provides Spanish-language resources, and will add resources in Chinese, Vietnamese, Korean, and Tagalog in the coming years. Mortgage Translations also includes a Spanish-English glossary developed in collaboration with the CFPB to help standardize translations across the mortgage industry.
NYDFS issues best practices guidance for state-chartered institutions issuing loans to multi-family residential owners and landlords
On September 25, NYDFS released new guidance to assist regulated, state-chartered institutions when engaging in permissible lending activities involving New York rent-stabilized or rent-regulated multifamily residential buildings. According to the press release, the department received complaints concerning certain owners/landlords of rent-stabilized multifamily residential buildings who allegedly engaged in “inappropriate practices including tenant harassment and unsafe living conditions” and may have obtained loans to purchase or renovate buildings directly or indirectly from regulated institutions. The guidance is intended to ensure that regulated institutions apply best practices, including pre-loan and post-loan due diligence, to prevent the possibility of knowingly or unknowingly facilitating these types of practices. Among other things, pre-loan due diligence best practices include (i) conducting due diligence on property owners, including when the bank’s role is to provide indirect financing to the property owner; (ii) conducting due diligence on properties and property owners, including enhanced diligence on properties with a high number of violations; (iii) ensuring “realistic and sound underwriting terms” for loans involving multifamily residential buildings; and (iv) establishing a debt service coverage ratio subject to documentation based on the specific facts of each loan as well as realistic assumptions, consistent with safe and sound underwriting standards and practices. The best practices for post-loan monitoring should include (i) establishing covenants or procedures to ensure emergency and hazard repairs are completed within six months of a loan’s closing; and (ii) considering the property owner’s level of responsiveness and willingness to address building code violation when factoring future loans to the property owner.
On October 1, the FDIC released a report, which covers the findings of its Small Business Lending Survey. The survey studied the responses of approximately 1,200 banks to analyze the small business lending practices of each institution. The survey included topics such as, overall small business lending volume, types of borrowers, market areas and competitive environments, competitive practices and advantages, and underwriting practices. Among other things, the report concludes that (i) banks lend more to small businesses than is currently measured as many banks lend over the $1 million commercial and industrial lending limit used; (ii) small and large banks cite to personal relationships as their top competitive advantage in the market and many are willing to grant exceptions to underwriting policies based on their relationships; and (iii) small business lending typically occurs locally as very few banks accept small business loan applications online.
On August 27, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), including as amended by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank ability-to-repay and qualified mortgage provisions (ATR/QM). The CFPB is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2018. The following thresholds will be effective on January 1, 2019:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will increase from $27 to $28, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase from $38 to $39;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $21,549, and the adjusted points and fees dollar trigger for high-cost mortgages will be $1,077; and
- The maximum thresholds for total points and fees for qualified mortgages under the ATR/QM rule will be: (i) 3 percent of the total loan amount for loans greater than or equal to $107,747; (ii) $3,232 for loan amounts greater than or equal to $64,648 but less than $107,747; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,549 but less than $64,648; (iv) $1,077 for loan amounts greater than or equal to $13,468 but less than $21,549; and (v) 8 percent of the total loan amount for loan amounts less than $13,468.
Conference of State Bank Supervisors announces single, national exam for mortgage loan originator licensing
On August 8, the Conference of State Bank Supervisors announced that all states and U.S. territories now use a single, common exam to assess mortgage loan originators (MLOs) in order to simplify the licensing process and streamline the mortgage industry. MLSs who pass the National SAFE MLO Test with Uniform State Content (National Test) will no longer be required to take additional state-specific tests in order to be licensed within any state or U.S. territory. The National Test is part of CSBS’ Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.
Find continuing InfoBytes coverage on CSBS’ Vision 2020 here.
On August 7, the Federal Housing Finance Agency (FHFA) published a report providing the results of the fifth annual stress tests conducted by government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs). According to the report, Dodd-Frank Act Stress Tests Results – Severely Adverse Scenario—which provides modeled projections on possible ranges of future financial results and does not define the entirety of possible outcomes—the GSEs will need to draw between $42.1 billion and $77.6 billion in incremental Treasury aid under a “severely adverse” economic crisis, depending on how deferred tax assets are treated. The losses would leave $176.5 billion to $212 billion available to the companies under their current funding commitment agreements. Notably, the projected bailout maximum is lower this year than FHFA reported last year, which ranged between $34.8 billion and $99.6 billion.
FTC announces charges against auto dealerships for falsifying consumer information on auto financing documents
On August 1, the FTC announced charges against a group of four auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border alleging, among other things, that the defendants advertised misleading discounts and incentives through their vehicle advertisements, and falsely inflated consumers’ income and down payment information on certain financing applications. The charges brought against the defendants allege violations of the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act. According to the complaint, by allegedly falsifying the customers’ income and down payments, the defendants “inaccurately made consumers appear more creditworthy” on the false financing applications. Moreover, the FTC claims the defendants often prevented consumers from reviewing the falsified information provide in the financing applications prior to signing. As a result, credit was extended to consumers—many of whom are members of the Navajo Nation—who then subsequently “defaulted at a higher rate than properly qualified buyers.” Furthermore, the complaint asserts that the defendants’ deceptive advertising practices concealed the true nature and terms of the financing or leasing offers, and were in violation of federal law for failing to disclose the required terms. The complaint seeks, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement.
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Jeffrey P. Naimon and Jonice Gray Tucker to discuss "Enforcement and litigation trends" at the American Bankers Association General Counsel Meeting
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- David S. Krakoff to discuss "The DOJ corporate enforcement policy and your disclosure calculus one year in: Are companies benefitting?" at the American Conference Institute International Conference on the Foreign Corrupt Practices Act
- Moorari K. Shah to discuss "Legal & regulatory issues" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Jonice Gray Tucker to discuss "Hot topics in consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss "Anti-money laundering/OFAC compliance" at the Institute of International Bankers U.S. Regulatory/Compliance Orientation Program