The Dodd-Frank Wall Street Reform and Consumer Protection Act includes a major overhaul of the nation's consumer protection regime, with a new federal regulator, the Consumer Financial Protection Bureau (CFPB), as the centerpiece. Although the final legislation establishes the CFPB within the Federal Reserve System, not as the independent agency originally contemplated by the Obama administration, this difference is only cosmetic because the Federal Reserve Board (FRB) is prohibited from intervening in the CFPB's rulemaking, examinations, and enforcement actions, and from appointing or removing any CFPB employees.

The CFPB provisions are found in Title X of the Dodd-Frank Act, which is separately titled the "Consumer Financial Protection Act of 2010." Key features of the CFPB and related consumer protection provisions of the Dodd-Frank Act include the following:

Overall Structure

  • The CFPB will be headed by a Director to be appointed by the President and confirmed by the Senate for a five-year term. The initial Director will accordingly be appointed by President Obama and approved by a Senate controlled by the Democratic Party.

  • The CFPB will be funded through transfers from the FRB in each fiscal year, with the maximum amount that can be transferred in a fiscal year to be based on a percentage of the FRB's total operating expenses for that fiscal year (starting with 10 percent of such expenses in fiscal year 2011, an amount that equals approximately $540 million, and increasing to 12 percent by fiscal year 2013). If the CFPB's Director determines that the transferred funds are insufficient for the CFPB to carry out its authorities, an additional appropriation of $200 million for each of fiscal years 2010 through 2014 is authorized.

  • The CFPB will include various units and offices, including a research unit to monitor the consumer financial products and services market, a unit to collect and track complaints, an Office of Fair Lending and Equal Opportunity, an Office of Financial Education, an Office of Service Members Affairs, and an Office of Financial Protection for Older Americans. The CFPB's Director is also required to designate a Private Education Loan Ombudsman within the CFPB to deal with complaints from borrowers of private education loans.

  • The CFPB will have sweeping authority to adopt and enforce substantive regulations that apply to any person that engages in offering or providing a "consumer financial product or service" (covered persons), other than those persons explicitly excluded by the Dodd-Frank Act. Affiliates of covered persons who act as service providers to such persons are also treated as covered persons, subject to the CFPB's authority. The CFPB's enforcement authority includes the power to impose civil money penalties, ranging from $5,000 per day for garden-variety violations of federal consumer financial laws to $25,000 per day for reckless violations and $1million per day for knowing violations.

  • A "consumer financial product or service" is broadly defined to include any financial product or service offered or provided for use by consumers primarily for personal, family, or household purposes and that falls within the Dodd-Frank Act's definition of a "financial product or service." That definition includes the numerous financial products and services specifically identified therein as well as such other financial products or services as may be defined by the CFPB.

  • The persons generally excluded from the CFPB's rulemaking, supervisory, and enforcement authority include small businesses that operate as merchants, retailers, or other sellers offering purchase money credit where the debt is not assigned; real estate brokers; certain retailers of manufactured housing or modular homes; attorneys; persons regulated by a state insurance regulator or a state securities commission; accountants and tax preparers; and persons required to be registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission. Although auto dealers who routinely assign their credit contracts to unaffiliated third parties are also generally excluded, the compromise in the House-Senate conference that resulted in such exclusion authorizes the Federal Trade Commission to prescribe rules under Section 5 of the FTC Act to address unfair or deceptive practices by auto dealers. In exercising this authority, the FTC may use the notice and comment procedures provided by the Administrative Procedures Act rather than the more cumbersome procedures that currently apply to its Section 5 rulemaking under the Magnuson-Moss Warranty Act. The CFPB can also exempt covered persons from any provision of Title X or any CFPB rule based on factors such as total assets of a class of covered persons and the volume of transactions involving consumer financial products or services in which a class of covered person engages.

  • Certain provisions of Title X, such as those establishing the CFPB and those giving it general rulemaking authority for covered persons and supervisory authority over certain nondepository covered persons, become effective on the date of enactment. Most other Title X provisions take effect on the "designated transfer date," which is to be published by the Secretary of the Treasury in the Federal Register within 60 days of the Dodd-Frank Act's enactment. The "designated transfer date" can be no sooner than 180 days and no more than 18 months from enactment.

  • The Secretary of the Treasury is authorized to conduct the functions of the CFPB pending confirmation of a Director, and the Treasury Department is authorized to provide administrative services to support the CFPB before the designated transfer date.

Rulemaking Authority

  • The Dodd-Frank Act establishes general standards for the CFPB's rulemaking, including that it must consider the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to financial products or services resulting from a rule. The CFPB must also consult with the federal banking agencies regarding consistency of its proposed rules with safety and soundness objectives. Where the CFPB has authority to issue rules under a consumer financial law, such authority is exclusive.

  • The rulemaking authority of various federal agencies under most consumer financial protection statutes (such as the Truth in Lending Act, the Equal Credit Opportunity Act, and the Real Estate Settlement Procedures Act) is transferred to the CFPB. Those agencies include the FRB, the Office of the Comptroller of the Currency, the Office of Thrift Supervision (which the Dodd-Frank Act abolishes), the National Credit Union Administration, the Federal Deposit Insurance Corporation, and the Department of Housing and Urban Development (with regard to its rulemaking authority under RESPA, the Secure and Fair Enforcement for Mortgage Licensing Act, and the Interstate Land Sales Full Disclosure Act). Although the FTC's consumer protection rulemaking authority is also generally transferred to the CFPB, the FTC retains its authority under the Credit Repair Organizations Act, Telemarketing and Consumer Fraud and Abuse Prevention Act, and Section 5 of the FTC Act. Rulemaking authority under the Community Reinvestment Act remains with the federal banking agencies.

    • The CFPB is specifically authorized to issue rules identifying as unlawful acts or practices it defines as "unfair, deceptive, or abusive acts" in connection with the offer or provision of a consumer financial product or service to a consumer.

        • To declare an act or practice "unfair," the CFPB must have a reasonable basis to find that the act or practice is "likely to cause substantial injury to consumers which is not reasonably avoidable by consumers" and that such injury "is not outweighed by countervailing benefits to consumers or to competition." Public policy cannot serve as the CFPB's primary basis for finding an act or practice "unfair."

        • To declare an act or practice "abusive," the CFPB must find that the act or practice "materially interferes" with the consumer's ability to understand a term or condition of the product or service, or that it "takes unreasonable advantage" of the consumer's lack of understanding of the associated material risks and costs, the consumer's inability to protect his or her own interests in selecting or using the product or service, or the consumer's reasonable reliance on the provider to act in the consumer's interests. Note that leading academic proponents of the CFPB have argued that, inherently, consumers are unable fully to appreciate the likelihood that they will engage in specified future behaviors, such as making late payments or overdrawing their deposit accounts.

        • No standards are specified for the CFPB to declare that an act or practice is "deceptive."

    • The CFPB is authorized to issue disclosure rules, and there is a safe harbor for any covered person that uses a CFPB model form.

    • The CFPB is prohibited from imposing a usury limit on any credit offered or extended by a covered person unless otherwise explicitly authorized by law.

    • The CFPB can issue regulations to prohibit or restrict the use of mandatory arbitration agreements if, based on the results of a mandated study, it finds that action to be "in the public interest and for the protection of consumers." Any such regulations can apply only to agreements entered into more than 180 days after their effective date.

    • The Financial Stability Oversight Council created by the Dodd-Frank Act can, by a two-thirds vote, set aside a final rule issued by the CFPB on the grounds that it would create safety and soundness risks for the financial system.

    • The Dodd-Frank Act includes the so-called speed bump provision that designates the CFPB a "covered agency" for purposes of the Regulatory Flexibility Act of 1980, thereby requiring the CFPB to follow various procedures relating to the effect of its rulemaking on small businesses.

    Supervisory Authority

    • Effective on the date of enactment, the CFPB has supervisory authority over the following nondepository covered persons: payday lenders, private student loan providers (which can include universities and other educational institutions), various participants in the residential mortgage industry (originators, mortgage brokers, servicers, and providers of loan modification or foreclosure relief services), any covered person that is a "larger participant of a market for other consumer financial products or services" as defined by the CFPB, and any covered person that, based on complaints it receives or other information, the CFPB determines to be engaged in conduct "that poses risks to consumers." Where the CFPB and another federal agency are authorized by federal law to examine for or enforce compliance with federal consumer financial laws as to such persons, the Dodd-Frank Act gives the CFPB exclusive authority to take such action (with the exception of certain FTC enforcement actions).

    • For depository institutions and credit unions with more than $10 billion in assets and any of their nonexempt affiliates, except for examinations by a prudential regulator related to its backup enforcement authority, the CFPB has exclusive examination authority with respect to compliance with federal consumer financial laws and primary authority to enforce such compliance.

    • Depository institutions and credit unions with $10 billion or less in assets continue to be examined for compliance with federal consumer financial laws by their prudential regulators (although the CFPB can include its examiners in those examinations on a "sampling basis" and require reports to support such samples), and such regulators retain exclusive enforcement authority (relative to the CFPB).

    • In addition to its authority to impose civil money penalties described above, the CFPB can issue cease-and-desist orders to restrain activity or require affirmative action. It can also obtain various forms of relief, such as rescission or reformation of contracts, refunds, restitution, disgorgement for unjust enrichment, damages or other monetary relief, and limits on activities and functions.

    • Each state attorney general is generally authorized to bring a civil action in the name of his or her state to enforce provisions of Title X, or CFPB regulations issued under Title X, in a federal district court in his or her state or a state court in that state with jurisdiction over the defendant. In exercising their enforcement authority against national banks and federal savings associations, state attorneys general can only bring a civil action in the name of their state to enforce CFPB regulations issued under Title X. Any state regulator can bring a civil action to enforce the provisions of Title X or the CFPB regulations issued under Title X against any state-chartered or state-licensed entity. In such actions, a state attorney general or regulator can obtain the various forms of relief described above, other than civil money penalties that are available to the CFPB, and any remedies otherwise provided by law.

    Preemption and Visitorial Powers

    • Effective on the designated transfer date, the Dodd-Frank Act establishes a new preemption standard for national banks and federal thrifts.

        • A state consumer financial law can be preempted by a court or by the OCC only if it meets one of the following three conditions:

            • It would have a discriminatory effect on national banks or federal thrifts.

            • In accordance with the legal standard for preemption in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), the law "prevents or significantly interferes with the exercise by the national bank of its powers."

            • It is preempted by another federal law.

        • National bank preemption standards apply to federal savings associations.

        • Preemption for national bank and federal thrift subsidiaries is eliminated

        • Although national banks and federal thrifts and their operating subsidiaries can rely on existing preemption regulations of the OCC and OTS as to contracts entered into on or before the date of enactment of the Dodd-Frank Act, they will no longer be able to do so after the enactment of the Act, at least for contracts entered into on or after the designated transfer date. The preemption regulations of the OCC and OTS will no longer apply to such contracts. As a result, national banks and federal thrifts need to immediately conduct a thorough review of all state laws that could potentially apply to their operations under the Barnett standard and to the operations of their operating subsidiaries in the absence of any preemption.

        • A Barnett preemption determination must be made by the Comptroller of the Currency based on substantial evidence on a case-by-case basis. A "case-by-case" determination by the Comptroller can extend beyond a particular state law to other substantively equivalent state laws. Before making a determination that other state laws are substantively equivalent, the Comptroller must consult with the CFPB.

        • The Comptroller may not delegate a Barnett preemption determination to another employee or officer of the Comptroller.

        • Preemption determinations must be reviewed by the Comptroller at least every five years.

        • Chevron deference will not apply to preemption determinations. Instead, a reviewing court must consider the Comptroller's thoroughness, the validity of the Comptroller's reasoning, the consistency of the determination with other OCC preemption determinations, and "other factors the court finds persuasive and relevant to its decision."

    • National bank interest rate authority under Section 85 of the National Bank Act is preserved. The Dodd-Frank Act likewise leaves intact the comparable interest rate authority of federal thrifts and state-chartered banks and thrifts.

    • The decision in Cuomo v. Clearing House Association, LLC, 129 S.Ct. 2710 (2009), is codified to explicitly allow a state attorney general to bring a civil action against a national bank or federal savings association to enforce nonpreempted state laws. The codification does not remove the limit on visitorial powers that was interpreted by the U.S Supreme Court in Cuomo to bar a state attorney general from investigating a national bank in advance of bringing such an action. The OCC's ability to bring an action under the Dodd-Frank Act or Section 5 of the FTC Act cannot be used to block a private action.


    • Interchange transaction fees must generally be "reasonable and proportional" to the cost incurred by the issuer with respect to the transaction. The FRB is required to issue final regulations within 90 days of the Dodd-Frank Act's enactment to establish relevant standards. There are exemptions for government-administered payment programs, certain reloadable prepaid cards, and an issuer that together with its affiliates has less than $10 billion in assets. Whether these exemptions have real-world significance remains to be seen because payment networks may well set identical interchange fees for covered and exempt entities and transactions. It seems clear that this provision will simultaneously lower merchant costs and increase card fees imposed directly by issuers on consumers. Accordingly, we expect it to substantially reduce the availability and appeal of debit cards to consumers.

    • Various payment card network restrictions are prohibited, including restrictions on (1) the number of networks on which electronic debit transactions can be processed, (2) routing of electronic debit transactions for processing, (3) offering discounts for using a particular payment method, and (4) setting minimum transaction thresholds of up to $10 for accepting credit cards. The FRB is directed to issue regulations on network fees for the purpose of ensuring that network fees are not used to directly or indirectly compensate an issuer for an electronic debit transaction or to evade the restrictions on interchange fees.

    • The Dodd-Frank Act amends the Electronic Fund Transfer Act to require certain disclosures for remittance transfers to recipients in other countries and establishes a separate error resolution process for such remittances. The FRB is directed to issue regulations to implement these requirements.

    • Effective on the designated transfer date, the Dodd-Frank Act amends the Fair Credit Reporting Act to require that adverse action notices include a numerical credit score used in taking adverse action and other information regarding the credit score that is currently required to be provided only upon the consumer's request, such as the range of possible credit scores under the model used, the key factors that adversely affected the consumer's credit score in the model used, and the date on which the score was created. The credit score and other information must also be included in risk-based pricing notices.

    • Effective on the designated transfer date, the Dodd-Frank Act expands the coverage of the TILA to include credit transactions (other than credit secured by real property or a principal dwelling and private education loans) and consumer leases over $50,000 (formerly $25,000).

    Title XIV

    • Title XIV of the Dodd-Frank Act, titled the Mortgage Reform and Anti-Predatory Lending Act, includes various provisions primarily intended to address perceived abuses related to subprime mortgages. The substantive provisions of Title XIV are generally designated as part of the consumer protection laws that come under the purview of the CFPB and as to which the rulemaking authority of other federal agencies is transferred to the CFPB. Regulations required by Title XIV must be issued in final form within 18 months of the designated transfer date and take effect no later than 12 months after issuance. Provisions of Title XIV for which final regulations implementing them are issued take effect on the effective date of such regulations. Provisions of Title XIV for which no regulations are issued as of the date that is 18 months after the designated transfer date take effect on such date. Highlights of Title XIV include the following:

    Prohibition on Steering Incentives

    • For any "residential mortgage loan," TILA is amended to prohibit the payment to a "mortgage originator" of yield spread premiums or other compensation that varies based on the rate or terms of the loan other than the principal amount. The term "mortgage originator" generally includes brokers of "residential mortgage loans" and generally does not include creditors. A "residential mortgage loan" generally means any closed-end consumer credit transaction secured by a dwelling or real property that includes a dwelling.

    • TILA is also amended to generally prohibit a mortgage originator from receiving an origination fee or charge from someone other than the consumer and to generally prohibit any person who knows or has reason to know of the consumer's payment of direct compensation to the originator from paying any origination fee or other charge to the originator (except for bona fide third party charges not retained by the creditor, the mortgage originator, or an affiliate of either). An exception allows someone other than the consumer to pay an origination fee or other charge to a mortgage originator and the originator to receive such payments if the originator is not receiving any compensation directly from the consumer and the consumer is not making any upfront payment of discount points, origination points or fees, except for bona fide third party charges not retained by the creditor, the mortgage originator, or an affiliate of either. The FRB can issue rules to waive or create exemptions to the upfront payment limitation.

    • Mortgage originators are subject to TILA civil liability for failing to comply with the anti-steering prohibitions. The maximum liability may not exceed the greater of actual damages or an amount equal to three times the total amount of direct or indirect compensation or gain to the mortgage originator from the loan, plus the consumer's costs, including attorneys' fees.

    • The FRB is authorized to issue rules to prohibit terms, acts, or practices related to residential mortgage loans it finds to be "abusive, unfair, deceptive, predatory," or necessary or proper to ensure the availability of affordable mortgage credit and to effectuate the purposes and prevent evasion of the "anti-steering" prohibitions described above and the "ability to pay" underwriting standard described below.

    Minimum Underwriting Standards

    • TILA is amended to prohibit a creditor from making a residential mortgage loan unless it makes a good faith determination based on verified and documented information that, at the time of consummation, a consumer has a reasonable "ability to repay" the loan according to its terms, and all applicable taxes, insurance, and assessments. If the creditor knows or has reason to know that more than one residential mortgage loan secured by the same dwelling will be made to the consumer, the creditor must determine that the consumer has a reasonable ability to repay the combined payments and all applicable taxes, insurance, and assessments.

    • An "ability to repay" determination must be made using a payment schedule that fully amortizes the loan over its term and considers the consumer's credit history, current income, future income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or residual income after paying other debts, employment status, and other financial resources other than equity in the property securing the loan.

    • Income and assets must be verified by reviewing the consumer's W-2 IRS form, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of a consumer's income or assets.

    • A rebuttable presumption allows a creditor or assignee to presume that a loan meets the "ability to repay" requirement if the loan is a "qualified mortgage." A "qualified mortgage" is a residential mortgage loan that meets certain conditions, including that the regular periodic payments do not result in an increase in principal or, subject to regulations adopted by the FRB, allow the borrower to defer principal or result in a balloon payment that is more than twice as large as the average of earlier scheduled payments, and the total "points and fees" do not exceed 3 percent of the total loan amount.

    • The enhanced TILA civil liability for violations of the TILA "high cost" mortgage requirements is expanded to also apply to violations of the anti-steering prohibitions and the "ability to repay" requirement.

    Defense to Foreclosure

    • In a foreclosure or other collection action initiated by a creditor or assignee in connection with a residential mortgage loan, a consumer can assert a violation of the anti-steering prohibitions or the "ability to repay" requirement as a defense by way of recoupment or set off without regard to the TILA statute of limitations for civil liability, which is extended to three years for violations of the TILA "high cost" mortgage provisions, the anti-steering prohibitions, the "ability to repay" requirement, and certain of the other new TILA prohibitions and requirements added by Title XIV.

    Prohibition on Prepayment Penalties; Other Prohibitions

    • TILA is amended to prohibit prepayment penalties on residential mortgage loans other than "qualified mortgages." For purposes of the prohibition, a "qualified mortgage" does not include any loan with an adjustable rate or that has an annual percentage rate that exceeds certain thresholds. Prepayment penalties on "qualified mortgages" must be phased out so that there is no prepayment penalty after three years and the amount of a penalty declines from a maximum of 3 percent of the outstanding balance during the first year to a maximum of, respectively, 2 percent and 1 percent of the outstanding balance in years two and three. A creditor may not offer a residential mortgage loan with a prepayment penalty unless it also offers a loan without a prepayment penalty.

    • TILA is amended to prohibit mandatory arbitration provisions in any residential mortgage loan or open-end consumer credit plan secured by the consumer's principal dwelling.

    • New required TILA disclosures include pre-consummation disclosures regarding negative amortization and state antideficiency laws, a preclosing disclosure of the creditor's policy regarding the acceptance of partial payments and their application, a written notice for adjustable-rate mortgages secured by the consumer's principal residence that have an introductory fixed rate, and required periodic statements for residential mortgage loans.

    • State attorneys general are given expanded authority to enforce the TILA "high cost" mortgage provisions as well as many of the provisions added to TILA by Title XIV.

    TILA "High Cost" Mortgages

    • The coverage of the TILA"high cost" mortgage provisions is expanded to include any loan secured by the consumer's principal dwelling other than a reverse mortgage, including purchase money loans and open-end lines of credit. The APR triggers are generally changed for first mortgages to more than 6.5 percent above the "average prime offer rate for a comparable transaction" (APOR) and for subordinate mortgages to more than 8.5 percent above the APOR. The APOR is defined as the average prime offer rate for a comparable transaction as of the date the rate for the transaction is set, as published by the FRB.

    • The "points and fees" trigger for "high cost" mortgages is changed to more than 5 percent of the total transaction amount for transactions of $20,000 or more, and to more than the lesser of 8 percent of the total transaction amount or $1,000 for transactions of less than $20,000. The method of determining the APR on variable rate loans for purposes of the APR triggers is changed to use the maximum rate or to add the maximum margin to the fully indexed rate at consummation.

    • Also included in the definition of a "high cost" mortgage is any loan secured by the consumer's principal dwelling other than a reverse mortgage for which the loan documents allow the creditor to charge a prepayment penalty more than 36 months after closing or such penalty exceeds, in the aggregate, more than 2 percent of the amount prepaid. Because TILA is amended to prohibit prepayment penalties in "high cost" mortgages, it appears that this change in the "high cost" mortgage definition means that no principal dwelling-secured mortgage loan other than a reverse mortgage can include a prepayment penalty that applies more than 36 months after closing or exceeds, in the aggregate, more than 2 percent of the amount prepaid.

    • The definition of "points and fees" is expanded to include various items, such as all mortgage broker compensation paid directly or indirectly by the consumer or the creditor, the maximum prepayment penalty that can be collected under the new loan, and any prepayment penalty the consumer will incur under a loan being refinanced that was made or is held by the same creditor or its affiliate. Subject to certain conditions, up to two bona fide discount points and mortgage insurance may be excluded from "points and fees." A method for calculating "points and fees" on open-end loans is also provided.

    • In addition to the prepayment penalty prohibition, TILA is also amended to prohibit a "high cost" mortgage from containing a balloon payment that is more than twice as large as the average of earlier scheduled payments. Other new rules for "high cost" mortgages include required pre-loan counseling, a limit on late fees to 4 percent of the payment past due, a prohibition on financing any "points or fees" or a prepayment penalty in a refinancing of a loan held by the creditor or its affiliate, and new requirements for payoff statements, including a requirement for a creditor or servicer to provide up to four free payoff statements per year.

    Mortgage Servicing

    • Subject to certain exceptions, TILA is amended to require creditors to establish escrow accounts for the payment of taxes and insurance in connection with closed-end mortgage loans secured by a first lien on the consumer's principal dwelling when an escrow account is required by state or federal law, the loan is made or guaranteed by a state or federal agency, or the principal loan amount meets certain thresholds. A required escrow account must remain in existence for a minimum of five years, unless and until the borrower's equity would be sufficient so as to no longer require private mortgage insurance to be maintained, the borrower is delinquent or has otherwise not complied with the loan terms, or the mortgage is terminated. The TILA amendments include new required disclosures for loans with mandatory escrow accounts and loans secured by real property as to which an escrow is not established or closed at the consumer’s election.

    • Amendments to RESPA dictate new limits on force-placed insurance, including a requirement to send certain new notices before charging for such insurance; changes to qualified written request (QWR) procedures, including a prohibition on charging fees for QWRs (to be defined by CFPB regulations) and a reduction in the time for acknowledging a QWR from 20 to 5 business days and for a resolution from 60 to 30 days (which may be extended by up to 15 days upon notice to the borrower); and a requirement to refund or credit escrow account balances within 20 days of payoff.

    • TILA is amended to require that payoff statements for a "home loan" must be sent within seven business days of receipt of a written request, and that payments on principal dwelling-secured consumer loans generally be credited on the date payment is received and accepted nonconforming payments be credited within five days of receipt.


    • TILA is amended to require written appraisals for "higher-risk" mortgages and that such appraisals be performed by a certified or licensed appraiser who conducts a physical visit of the property’s interior. A "higher-risk" mortgage is generally defined as a residential mortgage loan secured by a principal dwelling that is not a "qualified mortgage"and that has an APR that exceeds the APOR by certain thresholds. A second appraisal is required for a purchase money "higher-risk" mortgage where the seller purchased the property within the previous 180 days at a lower price. A creditor must provide a free copy of each appraisal on a "higher-risk" mortgage to the applicant at least three days before closing and notice at the time of application regarding the applicant’s right to obtain a separate appraisal at his or her expense. The CFPB, federal banking agencies, and Federal Housing Finance Agency (FHFA) are required to jointly issue regulations to implement these requirements.

    • TILA is amended to prohibit certain conduct that violates "appraisal independence" in extending credit or providing any services for a principal dwelling-secured consumer credit transaction. Such prohibited conduct includes various actions taken by a person with an interest in the transaction for the purpose of influencing the appraiser's determination of the property's appraised value. Conflicts of interest by appraisers and appraisal management companies (AMC) are also prohibited. A creditor that knows at or before consummation that the appraisal independence standards have been violated is prohibited from extending credit based on the appraisal, unless the creditor documents that it acted with reasonable diligence to determine that the appraisal does not materially misrepresent the property's value.

    • The FRB is directed to issue interim final regulations within 90 days of enactment to define with specificity the conduct that violates appraisal independence. On the date such interim final regulations are issued, the Home Valuation Code of Conduct sunsets. The FRB, federal banking agencies, and FHFA are authorized to jointly issue rules or guidance regarding conduct that violates appraisal independence.

    • Violations of the appraisal independence requirements are subject to civil penalties of up to $10,000 per day for an initial violation and up to $20,000 per day for subsequent violations.

    • The CFPB, federal banking agencies, and FHFA are directed to jointly issue rules to establish minimum state requirements for AMCs, including that AMCs be registered and subject to a state appraiser certifying and licensing agency in each state in which an AMC operates. They are also directed to issue regulations to implement quality control standards for automated valuation models. The use of a broker price opinion as the primary basis for determining the value of property securing a purchase money residential mortgage loan is prohibited.

    • The Equal Credit Opportunity Act is amended to require a creditor to provide a free copy of any written appraisal or valuation obtained in connection with a first lien dwelling-secured loan to the applicant no later than three days before closing. (Currently, a copy of an appraisal is required to be provided only upon request, and a creditor may charge for photocopy and postage costs incurred in providing the copy.) A copy must be provided to applicants on denied, incomplete, or withdrawn applications. The creditor may charge a fee as reimbursement for the appraisal unless otherwise prohibited by law. Notice of the applicant's right to receive a copy of the appraisal must be provided at the time of application.

    Increased TILA and RESPA Civil Liability

    • The caps on TILA civil liability in an action involving a consumer lease is increased to $2,000 (from $1,000) and in a class action to the lesser of $1 million (from $500,000) or 1 percent of the creditor's net worth.

    • The caps on additional damages available under RESPA for violations of the QWR and transfer of servicing notice requirements in the case of a pattern or practice of noncompliance are increased in an individual action to $2,000 (from $1,000) and in a class action to the lesser of $1 million (from $500,000) or 1 percent of the servicer's net worth.

    Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or; John L. Culhane, Jr., 215.864.8535 or; Barbara S. Mishkin, 215.864.8528 or; or Mark J. Furletti, 215.864.8138 or

    Ballard Spahr's Financial Institutions Reform Task Force will continue to monitor these and other portions of the Dodd-Frank Act, and its members are available to assist clients as they prepare to address the new requirements.

    Return to the Dodd-Frank Act Brings Sweeping Regulatory Changes alert.




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