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  • NCUA Eases Regulatory Requirements for Certain Small Credit Unions; Finalizes Rule Regarding Troubled State Credit Unions

    Consumer Finance

    On January 18, the NCUA published a final rule to amend the definition of “small entities” from those with less than $10 million in assets to those with less than $50 million in assets. The change will allow more credit unions to be considered for relief from NCUA rules. The Regulatory Flexibility Act requires federal agencies to consider the impact of their rules on small entities and allows federal agencies to determine what constitutes a small entity. The NCUA proposed a $30 million threshold, which it adjusted upward following review of comments received on the proposal. The NCUA declined to adopt the $175 million threshold sought by some commenters and used by the Small Business Association and the CFPB. In addition to requiring the NCUA to assess the impact of future proposed and final rules on more small credit unions, the new threshold has the immediate effect of excluding more credit unions from certain requirements under NCUA’s Prompt Corrective Action rule and the requirement to implement interest rate risk policies. The rule requires the NCUA to review the threshold in two years, and every three years thereafter. The new threshold takes effect on February 19, 2013.

    On the same day, the NCUA published a final rule to allow the agency to determine whether a state-chartered credit union is in “troubled condition.” Under current law, only a state supervisory authority is permitted to declare a federally insured, state-chartered credit union to be in troubled condition. The NCUA believes that the change will help protect the National Credit Union Share Insurance Fund by leveraging the federal regulator’s resources to increase the likelihood that problems at covered credit unions are addressed. The rule goes into effect on February 19, 2013.

    NCUA Community Banks

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  • Chicago Requires Debt Collector Licensing, Sets Zoning Requirements for Small Dollar Lenders

    Consumer Finance

    On January 17, the City of Chicago passed ordinances related to debt collection, small dollar lending, and license enforcement. With the adoption of an ordinance requiring that debt collectors collecting debts from Chicagoans obtain from the City a Regulated Business License, Chicago becomes only the third municipality to require local debt collector licensing. By requiring a license, the ordinance requires that debt collectors follow all state and federal debt collection rules, including for example, providing debt verification. For debt collectors that have their licenses revoked, the ordinance requires a four-year wait period before a new license can be issued. A second ordinance sets new zoning rules for payday and title-secured lending stores. Finally, the City passed an ordinance that, effective June 1, 2013, will allow the Department of Business Affairs and Consumer Protection to initiate license revocation proceedings and refuse to issue or reissue the license of specific business locations convicted within the last five years of violating the Illinois Wage Payment and Collection Act (IWPCA) and the federal FDCPA. The passing of the ordinances follows a recent announcement by the City and the CFPB to enter a first-of-its-kind partnership to share information on consumer financial protection issues.

    CFPB Payday Lending Debt Collection

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  • California Appeals Court Holds No Actual Damages Necessary to Sustain Claims Against Dealer, Finance Company Under State Auto Finance Act

    Consumer Finance

    On January 15, the California Court of Appeal for the Second Appellate District held that an auto buyer need not plead actual damages to sustain a claim under the state’s auto finance act, and that there is no statutory protection from contract rescission afforded a dealer or its assignee for substantial compliance with the act. Rojas v. Platinum Auto Group, Inc. No. B235956, 2013 WL 156561 (Cal. App. Ct. Jan. 15, 2013). The plaintiff bought and financed a car with a dealer, agreeing to a deferred down payment schedule, which he claims the dealer failed to properly reflect on the retail installment sales contract. The dealer and the finance company to which it had assigned the loan, succeeded on demurrers in the trial court, obtaining dismissal of the buyer’s claims that the dealer’s mischaracterization of the down payment violated the state’s Rees-Levering Act, which requires a detailed and truthful itemization of a buyer’s down payment, and allegations that the mischaracterization violated the state Consumer Legal Remedies Act and constituted an unfair business practice. On appeal, the court held that “the purpose and history of Rees-Levering establish that [buyer] need not have suffered actual damage from [the dealer’s] violation of the statute’s disclosure requirements,” and that a common law substantial compliance rule has been statutorily removed. As such, the buyer could state a claim for relief under the act even for apparently “trivial” misstatements. The court also held that while the buyer’s allegations of injury are vague and do not support the assertions made regarding violations of the Consumer Legal Remedies Act and unfair business practices, the buyer should have the right to amend his claims. The court reversed the district court and remanded for further proceedings.

    Auto Finance

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  • California Supreme Court Overturns Long-standing Rule Limiting Fraud Exception to Parol Evidence Rule

    Consumer Finance

    On January 14, the California Supreme Court overturned a long-standing state limitation on the fraud exception to the parol evidence rule. Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Assoc., No. S190581, 2013 WL 141731 (Cal. Jan. 14, 2013). Generally, the parol evidence rule limits the use of evidence outside a contract itself to contradict or add to the terms of the contract. The exception allows a party to present extrinsic evidence to support a claim of fraud. In California, the Supreme Court in 1935 established a rule in Bank of Am. etc. Assn. v. Pendergrass, 4 Cal. 2d 258 (1935) to limit the fraud exception to evidence that establishes an independent fact or representation, a fraud in the procurement of the instrument, or a breach of confidence concerning its use. That Pendergrass limitation excluded evidence of a promise at odds with the written contract. The instant case involved two borrowers who entered into a restructured debt agreement with a credit association after falling behind on their payments. After the credit association sought to foreclose on the borrowers for failing to perform under the agreement, the borrowers sued the association, claiming that its vice president had promised terms different from those reflected in the written contract. The Supreme Court affirmed the intermediate appellate court’s holding in favor of the borrowers that evidence of an alleged oral misrepresentation of the written terms is not barred by the Pendergrass rule; concluding that Pendergrass was “an aberration,” it overturned the rule. The court determined that the Pendergrass rule was out of step with established state law at the time it was adopted and was improperly supported in the court’s 1935 decision, and reaffirmed that the parol evidence rule was never intended to be used as a shield to prevent proof of fraud. The court did not address whether, in this case, the borrowers had presented evidence of reasonable reliance on the promised terms, particularly given that the borrowers admit to having not reviewed the contract. That issue will need to be first addressed by the trial court on remand.

    Consumer Lending

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  • Federal Agencies Announces Numerous Appointments

    Securities

    SEC Names Office of Market Intelligence Chief. On January 22, the SEC announced that Vincente Martinez will serve as the head of the Office of Market Intelligence, a unit of the Enforcement Division that collects and evaluates tips, complaints and referrals. Mr. Martinez rejoins the SEC from the CFTC where he served as the first director of that agency’s whistleblower office. He previously spent eight years in the SEC’s Enforcement Division, most recently helping to develop Enforcement Division and SEC-wide policies and procedures for handling tips, complaints, and referrals. Lori Walsh, who is currently serving as the Acting Chief of the Office of Market Intelligence, will serve as Deputy Chief of the office.

    FHFA Announces Deputy Director for Housing Mission and Goals. On January 15, the FHFA announced that beginning in March Sandra Thompson will serve as Deputy Director of the Division of Housing Mission and Goals with responsibility for overseeing the FHFA’s housing and regulatory policy, financial analysis, and policy research and analysis of housing finance and financial markets. Ms. Thompson will leave her current position as Director of the Division of Risk Management Supervision at the FDIC where she led the agency’s examination and enforcement program for risk management and consumer protection. The FHFA also promoted Nina Nichols to serve as Deputy Director of the Division of Supervision Policy and Support.

    OCC Announces Chief Counsel. Last week, the OCC announced Amy Friend as the agency’s Chief Counsel beginning in February, replacing Julie Williams who retired last fall. Ms. Friend is a former assistant chief counsel at the OCC and served as chief counsel to the Senate Banking Committee during the development of the Dodd-Frank Act.

    FDIC OCC SEC FHFA

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  • Special Alert: Detailed Analysis of CFPB's High-Cost Mortgage Rule

    Lending

    On January 10, the CCFPB issued a final rule that amends Regulation Z (Truth in Lending) to implement changes to the Home Ownership and Equity Protection Act (HOEPA) made by the Dodd-Frank Act. As detailed in BuckleySandler's Special Alert, the rule expands the types of loans subject to HOEPA, revises the tests for whether a loan is "high-cost" and therefore subject to HOEPA, imposes new restrictions on high-cost loans, and requires new disclosures. Because of the special requirements for loans that meet HOEPA's high-cost tests, the HOEPA threshold has acted as a de facto usury ceiling for the vast majority of mortgage originators. With the rule's extension of HOEPA to more types of loans, and the lowering of the HOEPA thresholds, this ceiling will now affect a broader segment of consumers seeking mortgage loans than before. The rule also implements two additional Dodd-Frank Act provisions that are not amendments to HOEPA related to homeownership counseling. Click here to download BuckleySandler's detailed analysis of the final high-cost mortgage rule.

    CFPB Dodd-Frank HOEPA

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  • Special Alert: Detailed Analysis of CFPB's Final Ability-to-Repay/Qualified Mortgage Rule

    Lending

    As promised in our earlier flash Alert on the Consumer Financial Protection Bureau's highly anticipated final "Ability-to-Repay" rule governing residential mortgage lending under Regulation Z, we are providing in this Special Alert a detailed summary and analysis of the Rule, which becomes effective on January 10, 2014.  We also assess the Bureau's concurrently issued proposal, which seeks comments by February 25, 2013 on potential amendments to the Rule.  For ease of reference, the Alert contains a detailed, hyper-linked Table of Contents.

    CFPB TILA Dodd-Frank Qualified Mortgage

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  • CFPB Issues Mortgage Servicing Standards

    Lending

    On January 17, the CFPB issued final rules amending Regulation Z (TILA) and Regulation X (RESPA) to implement certain mortgage servicing standards set forth by the Dodd-Frank Act and to address other issues identified by the CFPB. The rule amending Regulation Z includes changes to (i) periodic billing statement requirements, (ii) notices about adjustable rate mortgage interest rate adjustments, and (iii) rules on payment crediting and payoff statements. The rule amending Regulation X addresses (i) force-placed insurance requirements, (ii) error resolution and information request procedures, (iii) information management policies and procedures, (iv) standards for early intervention with delinquent borrowers, (v) rules for contact with delinquent borrowers, and (vi) enhanced loss mitigation procedures. While many of the rules implement changes required by the Dodd-Frank Act, other proposed requirements incorporate requirements similar to those placed on servicers as part of the national mortgage servicing settlement earlier this year, or corrective actions taken in 2011 by the prudential regulators. The new standards go into effect on January 10, 2014. The rule provides certain exemptions for servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own. BuckleySandler will provide additional analysis of key issues in the rules once we complete our review of them.

    CFPB TILA Mortgage Servicing RESPA Loss Mitigation

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  • CFPB Plans Release of Mortgage Loan Originator Rule

    Lending

    On January 18, the CFPB announced that it will release a final rule regarding mortgage loan originator compensation and qualifications on Sunday, January 20. According to its press release, the rule will (i) prohibit steering incentives, (ii) prohibit “dual compensation,” and (iii) set qualification and screening standards for loan originators, but it will not require, as proposed, that mortgage loan originators make available a loan option with no upfront discount points or origination fees, if they were making available one with upfront discount points or origination fees. The press release states that while the majority of the loan originator rule will take effect in January 2014, certain provisions related to mandatory arbitration restrictions will take effect in June 2013. BuckleySandler will review the rule once it is released and provide additional analysis.

    CFPB Mortgage Origination

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  • FDIC Approves Joint-Agency Appraisal Rule for Higher-Risk Mortgages

    Lending

    On January 18, the Federal Reserve Board, the OCC, the FDIC, the NCUA, the FHFA, and the CFPB issued a final rule to implement Dodd-Frank Act amendments to TILA that require creditors to meet certain appraisal conditions before making a higher-risk loan. The rule uses the term “higher-priced mortgage loan,” which covers: (i) a loan for which the APR exceeds the average prime offer rate (an average market rate) by 1.5 percent for a first-lien loan, (ii) 2.5 percent for a first-lien jumbo loan, and (iii) 3.5 percent for a subordinate-lien loan. For such loans, the final rule requires that a creditor obtain a written appraisal from a certified or licensed appraiser that is based on a physical property visit of the interior of the property. During the application process, the creditor must issue a disclosure stating (i) the purpose of the appraisal, (ii) that the creditor will provide the applicant a copy of any written appraisal, and (iii) that the applicant may choose to have a separate appraisal conducted at his or her own expense. The creditor must provide the borrower with a free copy of any written appraisals at least three business days before closing. Additional appraisal requirements apply under certain circumstances. As did the proposed rule, and consistent with the statute, the final rule exempts loans that are considered “qualified mortgages,” as recently defined by the CFPB, as well as reverse mortgages, loans secured by manufactured homes, and certain other loans.

    On the same day, the CFPB issued a related rule to implement a Dodd-Frank Act provision that adds similar appraisal requirements to ECOA. The final rule generally mirrors the rule as proposed and requires that for any loan to be secured by a first lien on a dwelling, a creditor must (i) notify applicants within three business days of receiving an application of their right to receive a free copy of written appraisals and valuations and (ii) provide applicants a free copy of all written appraisals and valuations promptly after receiving them, but in no case later than three business days prior to closing on the mortgage. The rule prohibits creditors from charging additional fees for providing a copy of written appraisals and valuations, and allows applicants to waive the three day requirement, provided a copy of all written appraisals and valuations are provided at or prior to closing. Together, the revisions to TILA and ECOA, as implemented by these rules, require creditors to provide two appraisal disclosures to consumers applying for a higher-risk loan secured by a first lien on a borrower’s principal dwelling. The rules take effect January 18, 2014.

    CFPB Mortgage Origination Appraisal

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