Articles Posted in REGULATION Z

The Consumer Financial Protection Bureau announced they entered into a Consent Order (File No. 2014-CFPB-0010) with Atlanta-based Amerisave Mortgage Corporation; Novo Appraisal Management Corp.; and Patrick Markert on August 12, 2014 for violating a series of laws including Section 1031 and 1036 of the Consumer Financial Protection Act of 2010 (CFPA), Section 8 of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and the Mortgage Acts and Practices Rule (MAP Rule).

The CFPB found that Amerisave Mortgage Corp., which operates primarily as an online lender, designed its website to advertise and quote mortgage rate information in a deceptive bait and switch lending manner towards consumers. The Bureau stated that Amerisave advertised specific mortgage products online by listing specific mortgage rates in rate tables publicized through the website of an unrelated third-party company (“Rate Publisher”) which compiles rate quotes and other information of mortgage lenders who use its service.

Amerisave advertised lower rates than they were actually providing to consumers but once the consumers contacted them for those rate the consumers wound up paying higher rates than what Amerisave advertised. Amerisave also ran banner or display ads on various websites advertising lower rates as well to consumers.

The Dodd-Frank Update and The Legal Description legal publications at October Research, LLC have teamed up to host a 90-minute federal regulatory outlook webinar for mortgage, title insurance and settlement services professionals. This in-depth training features two top compliance attorneys who will educate participants on significant regulations impacting the industry in 2014. The webinar will be held on Tuesday, December 10, 2013 from 2:00-3:30 PM EST.

Speakers Mitch Kider, of Weiner Brodsky Kider PC, and Marx Sterbcow, of The Sterbcow Law Group, will define significant regulations, what companies should be doing now to prepare and what the regulatory landscape will look like as we move into yet another year of complying with thousands of pages of new and existing regulations. Topics will include:

•CFPB enforcement actions: Who’s at risk and what to expect;

On October 30, 2013, the Office of the Comptroller of the Currency “OCC” issued a bulletin on “Risk Management Guidance” which will have wide ranging implications for all vendors of national banks and federal savings associations. The bulletin provides new guidance for assessing and managing compliance risks associated with third-party relationships. A 3rd party relationship is any business arrangement between a banks and another entity, by contract or otherwise.

3rd party relationships include activities that involve outsourced products and services, use of independent consultants, networking arrangements, merchant payment processing services, services provided by affiliates and subsidiaries, joint ventures, and other business arrangements where the bank has an ongoing relationship or may have responsibility for the associated records. Affiliate relationships are also subject to sections 23A and 23B of the Federal Reserve Act (12 USC 371c and 12 USC 371c-1) as implemented in Regulation W (12 CFR 223). Third-party relationships generally do not include customer relationships.

The OCC stated that it “expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party. A bank’s use of 3rd parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws.”

The OCC released the bulletin in response to the on-going concern that banks were continuing to increase the number and complexity of third party relationships with both foreign and domestic 3rd parties. Specifically they highlighted:
(1) outsourcing entire bank functions to third parties, such as tax, legal, audit, or information technology operations;
(2) outsourcing lines of business or products;
(3) relying on a single third party to perform multiple activities, often to such an extent that the third party becomes an integral component of the bank’s operations;
(4) working with third parties that engage directly with customers;
(5) contracting with third parties that subcontract activities to other foreign and domestic providers;
(6) contracting with third parties whose employees, facilities, and subcontractors may be geographically concentrated; and (7) working with a third party to address deficiencies in bank operations or compliance with laws or regulations.

The OCC is concerned that the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships. The OCC has identified instances in which bank management has:
(1) failed to properly assess and understand the risks and direct and indirect costs involved in third-party relationships.
(2) failed to perform adequate due diligence and ongoing monitoring of third-party relationships.
(3) entered into contracts without assessing the adequacy of a third party’s risk management practices.
(4) entered into contracts that incentivize a third party to take risks that are detrimental to the bank or its customers, in order to maximize the third party’s revenues.
(5) engaged in informal third-party relationships without contracts in place.

These examples represent trends whose associated risks reinforce the need for banks to maintain effective risk management practices over third-party relationships.
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Marx Sterbcow, Managing Attorney of the Sterbcow Law Group LLC, has been selected to speak on a panel at the National Council of State Housing Agencies’ 2013 Annual Conference & Showplace at the New Orleans Marriott Hotel on Tuesday, October 22, 2013 from 9:30am-10:45am. The panel entitled “Dodd-Frank Update: Are You Ready?” will consist of Howard Zucker of Hawkins Delafield, Charles Carey of Mintz Levin, and will be moderated by Lee Ann Smith who runs the single family programs for the Oklahoma Housing Finance Agency.

The 8th Circuit Court of Appeals overturned a district court decision in the Charvat v. Mutual First Federal Credit Union case. The case involved a violation of the Electronic Fund Transfer Act (“EFTA”) 15 U.S.C. §1693 where the Charvat’s made several ATM withdrawals from two Nebraska banks. The 8th Circuit stated “The EFTA requires ATM operators to provide two forms of notice, one “on or at” the ATM machine and another on-screen during the ATM transaction, if the bank operators charged a ATM transaction fee. The ATM machines in question failed to provide the required notice disclosure on the “on ATM machine” and this was the basis for the class action.

The 8th Circuit held that “[D]ecisions by this Court and the Supreme Court indicate that an informational injury alone is sufficient to confer standing, even without an additional economic or other injury.” The 8th Circuit further stated that Charvat identified a variety of instances where the denial of a statutory right to receive information was sufficient to establish standing and cited to the Fed. Election Comm’n v. Akins case and more importantly the Dryden v. Lou Budke’s Arrow Fin. Co. which was a Truth-In-Lending Act case.

The citing of the Dryden case is particularly important because the 8th Circuit said ” “f [borrower] proved that the disclosure provisions of [TILA] and Regulation Z were violated in connection with the January 26 transaction, [lender] is liable for statutory damages.”).” The 8th Circuit said the EFTA creates a right to a particular form of notice before an ATM transaction fee could be levied. If that notice was not provided and a fee was nonetheless charged, an injury occurred, and the statutory damages are directly related to the consumer’s injury.”

The Consumer Financial Protection BureauCFPB” and the United States Department of JusticeDOJ” formally entered into an Memorandum of Understanding AgreementMOU” pursuant to Section 1054(d)(2)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act which mandated the two agencies to establish an agreement between themselves to help prevent enforcement conflicts and help streamline fair lending law litigation under Federal law. The MOU involves Federal fair lending laws such as the Equal Credit Opportunity Act, Home Mortgage Disclosure Act, and Truth In Lending Act.

The MOU outlined three key areas for this cooperative agreement:

1. Information sharing and confidentiality issues: the agencies will be sharing information in matters that the CFPB refers to the Justice Department, in joint investigations under the ECOA, and in order to coordinate fair lending enforcement. The MOU establishes strict confidentiality protections for this shared information.

The Consumer Financial Protection Bureau “CFPB” released the “Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act” (Regulation Z) proposed rule today. The CFPB is asking the public to comment on the rule on or before November 6, 2012 with the exception of 12 CFR 1026.1(c) and 1024.4 in which comments are due on or before September 7, 2012. The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFPB to issue proposed rules and forms that combine certain disclosures that consumers recieve in connection with applying for and closing on a mortgage loan under the TILA and RESPA. The CFPB has proposed to amend Regulation X (RESPA) and Regulation Z (TILA) to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property.

To read a copy of this proposed rule please click the link below. Warning the document is 1099 pages so becareful before hitting the print button on your computer!
http://www.regulations.gov/#!documentDetail;D=CFPB-2012-0028-0001
If you care to comment on the proposed rule the comment form can be accessed by clicking the link below:
http://www.regulations.gov/#!submitComment;D=CFPB-2012-0028-0001 Continue reading

On April 13, 2012 the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012-03 titled “Service Providers”. The CFPB stated that it expects supervised banks and nonbanks to oversee their business relationships with their service providers in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm.

The term “Service Provider” is defined in Section 1002(26) of the Dodd-Frank Act as “Any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” (12 U.S.C. Section 5481(26)). A “Service Provider” may or may not be affiliated with the person to which it provides services.”

The Consumer Financial Protection Bureau in its bulletin states that the CFPB “recognizes that the use of service providers is often an appropriate business decision for supervised banks and nonbanks. Supervised banks and nonbanks may outsource certain functions to service providers due to resource constraints, use service providers to develop and market additional products or services, or rely on expertise from service providers that would not otherwise be available without significant investment.”

The CFPB’s bulletin expresses concerns about the lack of liability by the lender to the consumer for third party behavior. “The mere fact that a supervised bank or nonbank enters into a business relationship with a service provider does not absolve the supervised bank or nonbank of responsibility of complying with Federal consumer financial law to avoid consumer harm. A “service provider” that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship.” The Consumer Financial Protection Bureau states that “depending on the circumstances, legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider.”

In short the CFPB now expects supervised banks and nonbanks to make sure the service providers comply with the law. The CFPB by issuance of this bulletin has effectively put the entire real estate industry on notice that if they want to do business in the future they had better make sure their internal controls are in place otherwise the supervised bank or nonbank will cease doing business with you.
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The Consumer Financial Protection Bureau “CFPB” announced plans today to implement an early warning enforcement action plan (“the Early Warning Notice“) which would allow those under investigation the ability to respond to the CFPB. The CFPB Bulletin 2011-04 (Enforcement) announced the first in a series of periodic bulletins the CFPB will release which are aimed at providing information about the policies and priorities of the CFBP’s Bureau of Enforcement.

Before the Office of Enforcement recommends that the Bureau commence enforcement proceedings, the Office of Enforcement may give the subject of such recommendation notice of the nature of the subject’s potential violations and may offer the subject the opportunity to submit a written statement in response. The decision whether to give such notice is discretionary, and a notice may not be appropriate in some situations, such as in cases of ongoing fraud or when the Office of Enforcement needs to act quickly.”

It is important to note that if the subject(s) of an investigation is asked to provide the Bureau of Enforcement a response statement and the subject prepares and submits the response statement under oath to the Bureau the response may be discoverable by third parties.

The Early Warning Notice also allows any person involved in an investigation to voluntarily submit a written statement at any point during an investigation.
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Reporter Avi Salzman with Barron’s is reporting that Bank of America may file for bankruptcy protection for it’s Countrywide subsidiary if litigation costs from Countrywide threaten Bank of America. Bank of America is the parent company of Countrywide but it is a separate legal entity. If Bank of America (NYSE: BAC) decides to declare bankruptcy it would only affect the Countrywide division not the entire company.

If Bank of America does file for bankruptcy protection for Countrywide it could have a material impact on on-going litigation involving RESPA, TILA, and other legal actions across the United States involving Countrywide. The purchase by Bank of America is widely viewed as one of the worst acquisition decisions in corporate American history.