NY Regulator Settles Lawsuit Filed Using Dodd-Frank Authority

A settlement has been announced in the lawsuit filed by Benjamin Lawsky, the Superintendent of the New York Department of Financial Services (DFS), using his Dodd-Frank Section 1042 authority. Section 1042 allows state attorneys general and regulators to bring civil actions for violations of Dodd-Frank’s prohibition of unfair, deceptive, or abusive acts or practices. Mr. Lawsky’s lawsuit represented the first lawsuit by a state regulator using his Section 1042 authority. (We have also been following several lawsuits filed by state AGs using this authority.)

In his lawsuit, which was filed in a New York federal court against a large subprime auto lender and its CEO, Mr. Lawsky alleged that the lender had systematically concealed from its customers the fact that they had refundable positive credit balances and failed to make refunds except when expressly requested by a customer. In addition, the complaint alleged that the lender submitted false unclaimed property reports to the New York State Comptroller’s Office denying that certain customers had positive credit balances. The complaint also alleged that the lender lacked basic information security measures, thereby endangering the security of its customers’ personally identifiable information. The complaint also included the allegation that the lender had violated the Truth in Lending Act (TILA) by calculating interest based on a 360-day year and applying the resulting daily interest rate to its customers’ loan accounts each of the 365 days during the year. According to the complaint, this practice resulted in customers paying interest exceeding the disclosed annual percentage rate (APR).

In the consent judgment submitted to the court for approval, the defendants admit to violations of Dodd-Frank, TILA and New York law. The consent judgment requires the defendants to pay a $3 million civil penalty, refund all positive credit balances and interest charged in excess of the disclosed APR, plus 9 percent interest on such amounts. Following the sale of the lender’s remaining loan portfolio by the receiver appointed by the district court, the consent judgment requires the lender to surrender its licenses in all states. If a customer is found by the DFS to have suffered identity theft within two years of the consent judgment that is traceable to the lender’s conduct, the consent judgment requires the individual defendant to pay such customer any damages resulting from the identity theft and provide free credit reporting to such customer for two years.

- Barbara S. Mishkin


CFPB Adjusts HMDA/TILA Asset-Size Exemption Thresholds

Adjustments to two asset-size exemption thresholds were published by the CFPB in today’s Federal Register. First, the Consumer Financial Protection Bureau has increased the asset-size exemption threshold under Home Mortgage Disclosure Act (HMDA)/Regulation C, which is currently set at $43 million. Banks, savings associations, and credit unions with assets at or below $44 million as of December 31, 2014, are exempt from collecting HMDA data in 2015.

Second, the CFPB has increased the asset-size threshold under TILA/Regulation Z for certain small creditors operating primarily in rural or underserved areas to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans (HPML). The threshold is currently $2.028 billion. Loans made by creditors operating primarily in rural or underserved areas with total assets of less than $2.060 billion on December 31, 2014, that meet the other Regulation Z exemption requirements will be exempt in 2015 from the escrow account requirement for HPMLs. (The adjustment will also increase the asset threshold for small creditor portfolio and balloon-payment qualified mortgages which references the HPML escrow account asset-size threshold.)

- Barbara S. Mishkin

CFPB Increases Appraisal Requirement Exemption Threshold

The CFPB, Fed, and Office of the Comptroller of the Currency have adjusted the threshold for smaller loans that are exempt from the appraisal requirement for “higher priced mortgage loans.” The appraisal requirement became effective January 18, 2014, and the exemption, which is subject to annual adjustment for inflation, currently applies to credit extensions of $25,000 or less.

Effective January 1, 2015 through December 31, 2015, the exemption threshold is increased to $25,500.

- Richard J. Andreano, Jr.

HUD Publishes New Rule Governing Federal Procurement and Contracting

The U.S. Department of Housing and Urban Development (HUD) recently published a rule that made numerous changes to grant administration, procurement, and contracting requirements. The rule repealed the requirements found at Part 84 and Part 85 and replaced them with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards found at 2 CFR Part 200. The changes will affect state, local, and Indian tribal governments, as well as nonprofit organizations and public housing agencies that receive federal awards.

The normal 30-day waiting period for implementing a new regulation has been waived, making the rule effective December 26, 2014. This means that federal awards made before December 26, 2014, will continue to be governed by 24 CFR Part 84 and 85. In instances where a federal award before this date provides that the award shall be subject to regulations as amended, then it will be governed by 2 CFR Part 200.

The new standards differ from Part 84 and 85 and will now be government-wide, affecting procurement and contracting for many federal agencies, including HUD. Links to the December 19, 2014, Federal Register and 2 CFR Part 200 are available for your reference.

- The Housing Group

South Carolina Announces Increased Criminal Background Check Fees

The South Carolina Board of Financial Institutions has increased the fees required for a criminal background check for mortgage loan officers (MLOs) and control persons. Note that the South Carolina criminal background check fees must be completed outside of the NMLS, and that the fees are in addition to the NMLS processing fee for the FBI criminal background check that is processed by the NMLS. Effective January 2, 2015, the new fees are:

  • MLO Fees – South Carolina criminal background checks for MLOs have increased to $38.50.
  • Control Person Fees – South Carolina Law Enforcement Division and FBI background checks for control persons have increased to $55.00.

NMLS Adds New Tennessee Flexible Credit License

Tennessee is now receiving applications for new license types beyond the mortgage industry through the NMLS. The Tennessee Department of Financial Institutions has begun receiving applications for a Flexible Credit License for company licenses (corporate or headquarters) and branch licenses (all other locations) through the NMLS.

- Marc D. Patterson

Copyright © 2015 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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