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On October 9, the Department of Veterans Affairs (VA) published a status update in the Federal Register to inform the public that it will not publish a final rule to adopt provisions outlined in its May 2014 interim final rule (IFR). The IFR was issued to implement provisions of Dodd-Frank concerning ability-to-repay standards and qualified mortgages (QM) as defined under TILA. According to the status update, section 309 of Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) superseded certain elements of the IFR. Specifically, the EGRRCPA’s “seasoning and recoupment requirements for [Interest Rate Reduction Refinance Loans] effectively eliminated the category of rebuttable presumption QM.” The VA reminded program participates to refer to Circular 26-18-13, previously issued in May and covered by InfoBytes, which addressed “loan churning” of VA-guaranteed refinance loans and set out new requirements for VA eligibility as addressed by EGRRCPA. The VA commented that it will publish future rulemaking to supersede the IFR, but that in the meantime, the IFR remains in effect to the extent the provisions do not conflict, or are not superseded by, EGRRCPA.
On September 26, the OCC issued Bulletin 2018-31, which updates the “Truth in Lending Act” (TILA) booklet of the Comptroller’s Handbook, which previously was issued in December 2014. The booklet provides guidance for OCC examiners to be used in connection with the examination and supervision of national banks and federal savings associations, which offer or extend consumer credit products covered by TILA. The updates reflect changes made to Regulation Z, TILA’s implementing regulations, since the booklet’s previous release, and includes procedures implementing the CFPB’s TILA-RESPA integrated disclosure rule (TRID). Additional updates include, among other things, (i) special provisions on certain construction loans; (ii) special provisions relating to small creditors and rural or underserved areas; (iii) changes regarding appraisals for higher-priced mortgage loan exemptions; (iv) updates to mortgage origination examination procedures; and (v) updates to mortgage servicing rules and the small creditor definition.
With the issuance of the new booklet, the OCC rescinds (i) OCC Bulletin 2014-61, “Truth in Lending Act: Revised Comptroller’s Handbook Booklet and Rescissions”; (ii) The TILA sections of OCC Bulletin 2015-27, “Revised Interagency Examination Procedures for Consumer Compliance”; and (iii) OCC Bulletin 2015-42, “Initial Examinations for Compliance With TILA-RESPA Integrated Disclosure Rule.”
On September 20, the New York Attorney General announced a lawsuit against nine student loan debt relief companies, along with their financing company, and two individuals (collectively, “defendants”), alleging that the defendants fraudulently, deceptively, and illegally marketed, sold, and financed student debt relief services to consumers nationwide. Among other things, the complaint alleges that the defendants (i) sent direct mail solicitations to consumers that deceptively appeared to be from a governmental agency or an entity affiliated with a government agency; (ii) misrepresented that they would apply fees paid by borrowers to student loan balances; (iii) charged consumers over $1,000 for services that were available for free; (iv) requested upfront payments in violation of federal and state credit repair and debt relief laws; (v) charged usurious interest rates; and (vi) provided consumers with “incomplete and harmful advice,” such as counseling borrowers to consolidate federal student loans without explaining that in certain circumstances borrowers could “lose months or years of loan payments they had already made that would qualify toward forgiveness of their loans under the Public Service Loan Forgiveness Program.” The New York Attorney General maintains that these practices violated several federal and state consumer protection statutes, including the Telemarketing Sales Rule, New York General Business Law, the state’s usury cap on interest rates as covered by New York Banking Law and New York General Obligations Law, disclosure requirements under the Truth in Lending Act, and the Federal Credit Repair Organization Act.
On September 13, the CFPB filed a complaint against a pension advance company, its owner, and related entities (defendants) based upon alleged violations of the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA). In a complaint filed with the U.S. District Court for the Central District of California, the Bureau charged that the defendants engaged in deceptive practices in violation of the CFPA when they allegedly misrepresented to customers that “lump-sum” pension advances were not loans and carried no applicable interest rate, even though customers were required to pay back advances at amounts equivalent to a 183 percent interest rate and often incurred fees such as one-time $300 set up fees, monthly management fees, and 1.5 percent late fees. According to the Bureau, the defendants allowed customers to take out advance payments ranging from $100 to $60,000. The defendants then allegedly provided the income streams as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates. Moreover, the defendants allegedly failed to provide customers with TILA closed-end-credit disclosures. The complaint seeks civil penalties, monetary and injunctive relief.
As previously covered in InfoBytes, the pension advance company initiated a suit against the CFPB in January 2017 after the Bureau declined to set aside or keep confidential a civil investigative demand served against the company. The suit challenged the Bureau’s constitutionality and argued that the company was likely to suffer irreparable harm from being identified as being under investigation. However, in a split decision, the D.C. Circuit Court ultimately denied the company’s bid for an emergency injunction, citing the now-vacated majority opinion in PHH v. CFPB.
1st Circuit holds homeowners who defaulted on an allegedly unlicensed mortgage loan cannot escape time bars for their claims
On August 23, the U.S. Court of Appeals for the 1st Circuit held that homeowners who defaulted on a refinance loan on their Massachusetts property could not void the transaction or enjoin their property’s foreclosure sale. The appellate court determined that the homeowners’ claims that the lender violated the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Massachusetts consumer protection statute were all time-barred. The homeowners argued that the statute of limitations never began to run because the lender was not licensed to lend money in the state, making the original note and mortgage “akin to forgeries and thus ‘void ab initio,’” but the court held that there was “no authority for this unusual proposition.” The court also refused to toll the limitations period under the doctrine of fraudulent concealment, which requires the plaintiff “to make a threshold showing of due diligence,” because the homeowners filed their claims more than five years after they retained counsel and ten years after they granted the mortgage at issue.
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.
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.
District court approves stipulated final judgment in favor of CFPB against one of the operators of online lending operation
On July 23, the U.S. District Court for the Western District of Missouri approved a stipulated final judgment and order against one of the two dozen defendants in the CFPB’s suit against an alleged online payday lending operation. In 2014, the Bureau filed a complaint against numerous entities and three individuals, accusing the defendants of violating the Consumer Financial Protection Act, Truth in Lending Act, and Electronic Fund Transfer Act by, among other things, purchasing information from online lead generators in order to access checking accounts to illegally deposit payday loans and withdraw fees without consumer consent, along with falsifying loan documents as evidence that the consumers had agreed to the loans. The stipulated final judgment and order resolved the Bureau’s claims against one of the individual defendants, an in-house accountant who monitored the bank accounts and the movement of funds between the entity and individual defendants. While the settling defendant neither admitted nor denied the Bureau’s allegations (except with respect to jurisdiction), he agreed to pay a civil money penalty of $1 (based, in part, on his inability to pay) and to fully cooperate with the Bureau.
CFPB announces settlement with Alabama-based operation for allegedly failing to properly disclose finance charges
On July 19, the CFPB announced a settlement with a small-dollar lending operation that allegedly failed to properly disclose finance charges and annual percentage rates associated with auto title loans in violation of the Truth in Lending Act (TILA) and the prohibition on deceptive practices in the Consumer Financial Protection Act (CFPA). According to the consent order, the Alabama-based operation, which owned and operated approximately 100 retail lending outlets in Alabama, Mississippi, and South Carolina under several names, materially misrepresented the finance charges consumers would incur for Mississippi auto title loans by disclosing a finance charge based on a 30-day term while having consumers sign a 10-month payment schedule. The Bureau asserts that “[c]onsumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.” Furthermore, the Bureau contends that the operation also failed to disclose the annual percentage rate on in-store advertisements as required under TILA. The order requires the operation to pay redress in the amount of $1,522,298, which represents the total undisclosed finance charges made directly or indirectly by affected consumers on their loans. However, based on defendants’ inability to pay this amount, full payment is suspended subject to the operation’s paying $500,000 to affected consumers. In addition to the penalties, the operation is prohibited from continuing the illegal behavior and the operation’s board must ensure full compliance with the consent order.
On June 29, the CFPB announced a $335 million settlement with a national bank who allegedly violated the Truth in Lending Act by failing to properly implement annual percentage rate (APR) reevaluation requirements, which would reduce APRs for certain consumer credit card accounts, consistent with Regulation Z. According to the consent order, the Bureau also claimed the bank failed to put in place reasonable written policies and procedures to conduct the APR reevaluations. Under the terms of the consent order, the bank is required to pay $335 million in restitution to affected consumers and implement corrected policies and procedures to ensure proper APR reevaluation processes. The Bureau further noted that it did not assess civil monetary penalties due to efforts undertaken by the bank to self-identify and self-report violations to the Bureau. The bank also voluntarily corrected the deficiencies, took steps to initiate remediation to affected consumers, and implemented compliance management system enhancements.
- Valerie L. Hletko to discuss "Forecasting litigation and settlement trends in the mortgage servicing and fair lending context" at the American Conference Institute National Forum on Residential Mortgage Regulatory Enforcement & Litigation
- Michelle L. Rogers and Jonice Gray Tucker to discuss “Building a govt affairs program; Government investigations” at the TechGC National Summit
- Tina Tchen to deliver keynote address at the American Bar Foundation Montgomery Summer Research Diversity Fellowship 30th Anniversary Celebration
- Douglas F. Gansler to discuss "Privacy, security and protection of your assets in contracts; Security exercises and tactical measures" at the TechGC National Summit
- H Joshua Kotin will discuss federal regulatory developments in mortgage lending and servicing at the Mortgage Bankers Association of Arkansas Fall Conference
- Kate Shrout to discuss "Conducting workplace investigations" at the TechGC National Summit
- Kathryn R. Goodman to discuss "HECM servicing policies and updates" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Fredrick S. Levin to discuss "Reverse mortgage litigation trends" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Melissa Klimkiewicz to speak at the "Digital marketing compliance roundtable" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Hank Asbill to discuss "The role of the media in white collar criminal investigations and the Mueller probe" at the American Bar Association White Collar Crime Town Hall
- John C. Redding to discuss "Regulatory compliance update" at PowerSports Finance
- Matthew P. Previn to discuss "Enforcement trends: Who is doing what and how?" at the Cambridge Forums Inc. Forum on Consumer Finance Litigation & Enforcement
- Jonice Gray Tucker to discuss "Protect yourself from a CFPB investigation" at the National Association of Settlement Purchasers Conference
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- Jonice Gray Tucker to discuss "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