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  • National Fair Housing Alliance Settles Lending Discrimination Claims Brought Against National Bank

    Lending

    On May 19, the National Fair Housing Alliance (NFHA) announced it had reached an agreement with a major national bank (Bank) related to a housing discrimination complaint the NFHA filed with HUD in 2014. The complainant alleges that NFHA conducted a series of tests over a period of several months revealing a “pattern of discriminatory conduct.” Latino prospective qualified borrowers were often quoted higher monthly payment and closing costs and were denied opportunities to speak with loan officers. The complainants also cited data showing that the number of purchase loan applications received from Latinos had declined over the past few years. While the Bank denied all allegations in the complaint, it agreed to contribute more than $400,000 towards fair housing efforts in South Carolina and nationwide. Separately, the original complaint led to HUD filing charges against the Bank last December on behalf of the NFHA for lending discrimination—citing, in particular, that prospective Latino borrowers were treated less favorably than non-Latinos, in violation of the Fair Housing Act.

    Lending HUD Enforcement Fair Lending Mortgage Lenders

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  • City of Philadelphia Sues National Bank for Discriminatory Lending Practices

    Lending

    On May 15, the City of Philadelphia filed a lawsuit against a national bank (Bank) alleging that it violated the Fair Housing Act by engaging in discriminatory lending practices that targeted minority borrowers. (See City of Phila. v. Wells Fargo & Co., Case No. 2:17-cv-02203-LDD, 2017 WL 2060317 (E.D. Pa.).) The complaint alleges that beginning in 2004 and continuing through the present, the Bank engaged in “a continuous and unbroken discriminatory pattern and practice of issuing higher cost or more onerous mortgage loans to minority borrowers” while offering better terms to similarly situated non-minority borrowers. The City’s complaint alleges discrimination under both disparate treatment and disparate impact theories. The City claims that the Bank has a long history of both redlining (the practice of refusing to make loans in minority neighborhoods) and reverse redlining (the practice of targeting higher cost loans or loans with less favorable terms to minority neighborhoods). The complaint further describes a pattern of knowing and intentional discrimination by the Bank, relying on statistical analyses finding, among others, that: (i) a loan for a home in a predominantly minority neighborhood was 4.7 times more likely to go into foreclosure than a loan on a home in a mainly white neighborhood; (ii) African American and Latino borrowers were more than twice as likely to receive a high-cost loan as white borrowers; and (iii) when credit scores were factored in for borrowers with FICO scores of more than 660, African American borrowers were more than 2.5 times more likely than white borrowers to receive a high cost loan, and Latino borrowers more than twice as likely. As a result of the foreclosures and vacant homes, the City says it suffered a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services.

    City of Miami Suit. As previously covered in InfoBytes, the Supreme Court recently ruled that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the Fair Housing Act (FHA) against lenders for injuries allegedly flowing from discriminatory lending practices, although the five-justice majority held that such injuries must be proximately caused by the FHA violations. The Supreme Court returned the City’s lawsuit to the U.S. Court of Appeals for the Eleventh Circuit because, while the Court found that the City’s injuries appeared to be a foreseeable result of the lender’s practices, this was not enough to establish proximate cause. Therefore, it remains to be seen whether the City can show proximate cause.

    Lending Courts FHA Mortgage Lenders Consumer Finance

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  • CFPB Issues Report Finding That 90 Percent of Student Borrowers Are Not Enrolled in Income Driven Repayment Plans

    Lending

    On May 16, the CFPB published analysis of a student loan industry data sample, which indicates that nine out of ten of the highest-risk borrowers are not enrolled in federal affordable repayment plans. The report, entitled Update from the CFPB Student Loan Ombudsman, is based on data the Bureau received in response to a voluntary request (Appendix C) for information it sent to several student loan servicers seeking information regarding practices used on borrowers transitioning from default to income-driven repayment plans (IDR). As previously reported in InfoBytes, the 2016 report highlighted the fact that “the majority of borrowers who cure a default and seek to enroll in IDR do so by first rehabilitating their defaulted debt. However, these borrowers describe a range of communication, paperwork processing, and customer service breakdowns at every stage of the default-to-IDR transition.” The Bureau found that data provided in response to its request support the following preliminary observations:

    • More than 90 percent of borrowers who rehabilitated one or more defaulted loans were not enrolled and making IDR payments within the first nine months after “curing” a default.
    • Borrowers were five times more likely to default for a second time if they did not enroll in an IDR.
    • As previously projected in 2016,  nearly 30 percent of borrowers who exited default through rehabilitation defaulted for a second time within 24 months and more than 40 percent of borrowers re-defaulted within three years.
    • More than 75 percent of borrowers who default for a second time did not successfully pay a single bill to their student loan servicers. The CFPB estimates that “as many as four out of every five borrowers who rehabilitate a student loan could be eligible for a zero dollar ‘payment’ under an IDR plan, suggesting many of these defaults were preventable, even for the most economically vulnerable consumers.”
    • Borrowers who used the consolidation option, which requires borrowers to enroll in an IDR plan (except in rare circumstances) to resolve their student loan defaults, are more likely to immediately begin to repay their debts successfully.

    According to the CFPB, the data reinforce the Bureau’s concern that “hundreds of thousands of borrowers who recently cured their default through rehabilitation are unable to successfully access a stable and affordable repayment plan and soon end up back in default.” Further, the Bureau found support for its position that “borrowers who cure default through consolidation appear to fare much better, particularly in the first months after exiting default.”

    Lending CFPB Student Lending

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  • DOJ Enters $89 Million Settlement with Texas-Based Bank in False Claims Act Matter

    Lending

    On May 16, the U.S. Department of Justice (DOJ) announced that a Texas-based bank (Bank) agreed to settle the DOJ’s allegations that it violated the False Claims Act and FIRREA by wrongfully seeking payments from a federally insured reverse mortgage program. To protect lenders, HUD provides mortgage insurance through a program administered by the Federal Housing Administration (FHA) on reverse mortgage loans, in which seniors borrow money against the equity they have in their homes. The DOJ alleged that the Bank sought to obtain insurance payments for interest from the FHA despite failing to properly disclose on the filed insurance claim forms that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from approximately 2011 to 2016, the mortgagees on the relevant reverse mortgage loans serviced by Bank “allegedly obtained additional interest that they were not entitled to receive.” The Bank agreed to pay more than $89 million to resolve the allegations, of which $1.6 million will be paid to the individual who filed the lawsuit under the whistleblower provisions of FIRREA.

    Lending Reverse Mortgages Enforcement False Claims Act / FIRREA Whistleblower

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  • Massachusetts AG Announces Settlement with Student Loan Debt Relief Company

    Lending

    On April 28, Massachusetts Attorney General Maura Healey announced a settlement with a student loan debt relief company to resolve allegations that the company charged consumers illegal upfront fees to receive debt relief assistance and falsely led customers to believe it was affiliated with the federal government. According to the Attorney General’s office, this is the fourth in a series of enforcement actions brought against student loan debt relief companies in the state. Under the terms of the April settlement, the company is required to refund $6,500 to 18 affected borrowers, must agree to discontinue providing student loan services, and is prohibited from selling or disseminating Massachusetts customer information collected. Previously in 2015 and 2016, Healey announced settlements with three debt relief companies, bringing the overall recovery total to-date to more than $260,000. In November 2015, the state launched the Student Loan Assistance Unit to assist borrowers unable to repay their loans (see previous InfoBytes summary).

    Lending Debt Relief Student Lending State AG

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  • Treasury Department Releases Report on Troubled Asset Relief Program (TARP)

    Lending

    On April 10, the Treasury Department released the March 2017 Monthly Report to Congress on the status of its Troubled Asset Relief Program (TARP). Among other things, the report provides updates on TARP programs such as the Capital Purchase Program, the Community Development Capital Initiative, and the Making Home Affordable Program, among others. Additionally, the report highlights, among other things, administration obligations and expenditures, insurance contracts, transaction reports, and projected costs and liabilities. On May 1, the Treasury issued a monthly TARP update noting principal, investment, income, and revenue totals affecting certain TARP programs.

    Lending Treasury Department TARP Mortgages

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  • Nevada AG Issues Advisory Opinion Finding Assignment of a Retail Installment Sales Contract Does Not Subject Assignee to Licensure or Regulation Under Ch. 675 of the NV Code

    Lending

    Last month, the Office of the Attorney General for the State of Nevada (OAG) issued an Advisory Opinion[1] finding that a retail seller financing its own sales pursuant to the retail installment sales contract (RISC) provisions found in Chapter 97 of the Nevada Revised Statutes (NRS), but which is otherwise not engaging in lending activity, is not required to secure a lender’s license under Chapter 675 of the NRS. In reaching this conclusion, the OAG references another opinion[2]it had issued earlier this year concerning retail installment lending, and noted that “[w]hen a retail seller finances its own sales pursuant to the provisions of Chapter 97, but otherwise engages in no lending activity, the retailer's business activity is governed exclusively by the provisions of Chapter 97” (emphasis added). In light of this earlier holding, the OAG reasoned as follows:

    [W]hen a person purchases or takes an assignment of a RISC pursuant to the provisions of Chapter 97 of the NRS, the person’s acceptance of the assignment does not subject the person to regulation or licensure under NRS Chapter 675. Assuming that the person is not independently engaged in lending activity subject to licensure and regulation under NRS Chapter 675, the person’s financing activity is governed exclusively by the provisions of NRS Chapter 97. To the extent that a vehicle dealer adopts the contractual terms of the form RISC as prescribed by the Commissioner in accordance with Chapter 97, the vehicle dealer is permitted to assign the RISC to a financial institution. Although it applies in general terms to certain types of lending activity, NRS Chapter 675 does not specifically abrogate the exclusive provisions of Chapter 97 that govern the parties to a RISC made and assigned pursuant to Chapter 97.

    Notably, the Opinion was issued in response to a request from the Commissioner of the Financial Institutions Division of the Nevada Department of Business and Industry (NDBI), seeking a “formal opinion” regarding certain indirect vehicle financing transactions that use the form retail installment contract prescribed for use in the sale of vehicles pursuant to NRS 97.299. Specifically, the Commissioner sought an opinion addressing “[w]hether a financial institution that purchases Retail Installment Sales Contracts ("RISC[ s ]") from motor vehicle dealers in the State of Nevada (i.e. engages in indirect financing) is required to be licensed pursuant to Chapter 675 of the NRS[.]” The Commissioner also requested clarification addressing “[w]hether NRS Chapter 675 requires such a financial institution to have an in-state physical presence[.]”

    Lending Agency Rulemaking & Guidance Insurance State AG

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  • FDIC Releases May List of CRA Compliance Examinations

    Lending

    On May 3, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in February 2017. Monthly lists of all state nonmember banks and their evaluations that have been made publically available can be accessed through the FDIC’s website. As noted by the FDIC, the CRA is “intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.”

    Lending Consumer Finance CRA FDIC

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  • CFPB Releases Supervisory Highlights Focused on Student Lending and Mortgage Servicing

    Lending

    On April 26, the CFPB released its Supervisory Highlights for spring 2017, which outlines its supervisory and oversight actions in areas such as mortgage servicing and student loan servicing.  According to the Supervisory Highlights, recent supervisory resolutions have “resulted in approximately $6.1 million in restitution to more than 16,000 consumers.”

    Student loan servicing. Bureau examiners reported that student loan servicers (i) routinely acted on incorrect information about whether the borrower was enrolled in school, and (ii) failed to reverse certain charges, including improper late fees and capitalization of unpaid interest, even after they knew they had wrongly ended a deferment.

    Mortgage servicing. According to the report, the Bureau continued to see “serious issues for consumers seeking alternatives to foreclosure, or loss mitigation, at certain servicers.” CFPB examiners found problems with premature foreclosure filings, mishandling of escrow accounts, and incomplete periodic statements. Furthermore, examiners found that one or more mortgage servicers:

    • failed to identify the additional documents and information borrowers needed to submit to complete a loss mitigation application and then denied the applications for not including those documents;
    • launched the foreclosure process prematurely after receiving loss mitigation applications from borrowers, thereby failing to give required foreclosure protections to qualified consumers;
    • mishandled escrow accounts by using funds to pay insurance premiums on unrelated loans, creating shortages in the escrow accounts and higher monthly payments for consumers; and
    • issued incomplete periodic statements that used vague language such as “Misc. Expenses” and “Charge for Service” when describing transaction activity.

    The report also outlined the Bureau’s position on employee production incentives and presented guidance and examples of where “incentives contributed to substantial harm.”

    Lending CFPB Student Lending Mortgages

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  • CFPB Fines Servicemember Auto Lender for Violating Consent Order

    Lending

    On April 26, the CFPB  issued a second consent order against an Ohio-based auto lender, specializing in extending credit to servicemembers, for violating an earlier 2015 consent order issued by the Bureau (see previous InfoBytes summary). The 2015 order required, among other things, that the lender to pay restitution of over $2 million to affected consumers in addition to a $1 million civil money penalty for allegedly engaging in unfair, abusive, and deceptive debt collection practices. The 2017 consent order claims the lender violated the earlier order by failing to provide the required consumer redress or the redress plan consistent with the 2015 consent order. The Bureau contends that the lender issued worthless account “credits” to settled-in full accounts and to consumers whose debts were discharged in bankruptcy, and failed to provide the appropriate redress to consumers making payments under settlement agreements. The consent order requires that the lender: (i) pay an additional $1.25 million civil money penalty; (ii) pay $718,900 to the Bureau, which will be sent as refunds to consumers; (iii) issue $372,157 in account credits to consumers who have account balances, in addition to properly crediting consumers making payments under settlement agreements; and (iv) pay $75,000 in redress-administration costs to the Bureau.

    Lending CFPB UDAAP Enforcement Debt Collection

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