House Passes Bill To Amend TILA Points and Fees Definition for Mortgage Loans

Earlier this week, the House of Representatives passed a bill to amend the TILA definition of “points and fees” that is used to determine whether a loan is a high-cost mortgage or, for purposes of TILA’s ability-to-repay provisions, a qualified mortgage.

The “Mortgage Choice Act,” H.R. 685, would amend the points and fees definition to exclude amounts escrowed for insurance and amounts for title charges (such as title examination and title insurance) paid to an affiliate of the creditor or mortgage originator.

The amendment regarding insurance escrows is viewed as a technical amendment. The amendment regarding title charges would conform the treatment of such charges for points and fees purposes regardless of whether the charges are received by an affiliate or non-affiliate. Currently title charges paid to a non-affiliate are excluded from points and fees.

- Richard J. Andreano, Jr.

CFPB Issues Final Rule on Homeownership Counseling Requirements

The CFPB has issued a final rule to assist lender compliance with RESPA and TILA homeownership counseling requirements. Under RESPA, a lender must provide applicants for a federally related mortgage loan with a list of certified homeownership counselors. TILA prohibits a creditor from making a high-cost mortgage loan unless it receives written certification that the borrower has obtained mortgage counseling from an approved counselor. The final rule updates a 2013 CFPB interpretative rule regarding the list requirement.

Regulation X gives lenders two methods for generating the required list. A lender can use a tool developed and maintained by the CFPB on its website. Alternatively, a lender can use data made available by the CFPB or HUD, provided the data are used in accordance with instructions provided. The final rule provides instructions for complying with the second method for generating a list. The rule addresses the number of counselors to appear on a list, the use of zip codes to generate a list, counselor contact information, accompanying information, and combining the list with other disclosures.

The final rule also addresses the qualifications necessary to provide pre-loan counseling for high-cost mortgages and lender participation in such counseling.

- Richard J. Andreano, Jr.

Seventh Circuit Clarifies “Date of Receipt” of Online Mortgage Payment

In a recent putative class action by borrowers against a mortgage servicer alleging violations of the Truth in Lending Act (“TILA”), the Seventh Circuit Court of Appeals found that mortgage servicers must credit electronic payments on the date a customer authorizes payment, rather than the date the servicer actually receives the funds from the customer’s bank account. Therefore, mortgage payments made online were timely when the borrowers authorized the payments on or before the date their payments were due.

The servicer in this case did not credit the funds for two business days. The servicer’s payment system allowed the borrower/customer to pay the mortgage servicer using a third-party bank account by signing onto her account with the servicer and providing the routing and account numbers for her bank account. The borrower could then authorize the payment by clicking a “submit payment” button. 

Each business day, the servicer compiled electronic authorizations submitted before 8 p.m. that day, and the day after that, used those authorizations to request the funds from the customers’ banks. In other words, it took at least two days between the date a customer authorized a payment online and the date the servicer received the funds and credited the customer’s account. If a customer submitted the authorization after 8 p.m., it would be added to the list of authorizations for two business days later, adding more lag time between the authorization and the actual debiting of the customer’s bank account.

The servicer argued that two business days was the earliest it could obtain funds from its customers’ banks. 

The putative class representative in the case was a customer who submitted a payment on a Thursday evening or Friday morning. Her account was not credited until the next Tuesday -- after the expiration of a grace period in which she had to make a timely payment. Had her account been credited when she authorized the payment, it would have been timely. The servicer charged her a late fee.

TILA and Regulation Z require servicers to credit payments to customer accounts “as of the date of receipt” of payment, unless delayed crediting would not affect late fees or credit reporting. The servicer argued that because a customer’s authorization was not the point at which the servicer actually received the funds, it should not need to credit the customer’s account on the date of authorization. The Seventh Circuit rejected this argument, analogizing that when payment is received in the form of a paper check, the payment is credited on the date of receipt of the check even though the servicer still must use the banking system to obtain funds authorized by that particular instrument. 

The court also rejected the servicer’s definitional argument under the CFPB’s Official Interpretations that the plaintiff had “preauthorized” the servicer to obtain funds from her bank, such that the date of receipt of the funds would be the date a payment should be credited. Rather, she had in fact authorized the bank (a third party) to send funds to the servicer, and had not authorized the servicer to do anything.

The Seventh Circuit ended its opinion with a policy statement that this outcome furthers one purpose of TILA: to protect consumers against unwarranted delay by mortgage servicers.  Mortgage servicers should be aware of this opinion in determining when to credit customers’ online mortgage payments.

- Joel E. Tasca, Michele C. Ventura, and Jessica C. Watt

CFPB Issues Third Service Members Complaints Report and Suggests Practices for Handling Accounts

The CFPB has issued its third snapshot of complaints received from service members, veterans and their families (“service member complaints”). The report covers complaints received from July 21, 2011, through December 31, 2014. In 2014, the CFPB received more than 17,000 complaints from such individuals (out of a total of approximately 29,500 complaints).

The report describes the types of service member complaints the CFPB has received, and for each type of complaint, discusses the issues most commonly involved. The report indicates that debt collection complaints are the largest category of service member complaints, comprising 39 percent of total complaints. The next two largest complaint categories are mortgages (nine percent of all complaints) and credit reporting (24 percent). Student loan complaints comprised three percent of the total, and the CFPB notes that it continues to see complaints from service members about not being provided their rights under the Servicemembers Civil Relief Act.

The report discusses three enforcement actions that focused on practices affecting service members and which resulted in more than $94 million in refunds and other relief.

In a special section entitled “Spotlight on a financial concern associated with military life: The difficulty of managing accounts,” the CFPB highlights service member complaints involving bank account and credit card fees and servicing issues. With regard to fees, the CFPB characterizes the complaints as illustrative of the difficulty faced by service members in avoiding fees because of their military service. As an example, the CFPB cites complaints about monthly fees for “misuse” such as not keeping a minimum balance or not performing any transactions in a monthly period. Another example cited by the CFPB is “misuse” following changes to account terms, such as the conversion of no-fee accounts to accounts with fees, of which service members were unaware because of the trouble they experience in receiving notices.

With regard to servicing, the CFPB discusses complaints about communication difficulties encountered by service members in attempting to resolve fee issues. For example, the CFPB cites a complaint from a service member who was unable to communicate with his bank because he could not access a telephone and could only access e-mail, which did not reach bank representatives with authority to resolve his problems.

The CFPB also discusses complaints involving difficulties faced by military spouses in attempting to access accounts while a service member is on active duty, even where the service member claimed he or she contacted the bank prior to deployment to authorize spousal  access. Complaints about difficulties faced by spouses attempting to use powers of attorney are also discussed, with the CFPB noting that such complaints indicate that “confusion about companies’ POA requirements has led to an exacerbation in fees and overall financial stress for many service members and their families.”

To address these complaints, the report includes a list a “suggested practices.” According to the CFPB, a company should:

  • Attempt to obtain an updated mailing address from military customers before changing terms of military-specific accounts;
  • Provide clear instructions on how to provide account access to someone designated by the service member and the actions that person can and cannot take;
  • Proactively notify military consumers about POA company policies, including providing on the company’s website any specific format or language it requires for a POA;
  • Ensure feasible communication methods for all consumers, with the CFPB noting that limiting communication to telephone or fax for military consumers greatly impacts their ability to conduct bank business, particularly if communication is limited to business hours.

While framed as “suggested practices,” banks and other companies serving military customers should expect CFPB examiners to measure their practices against the CFPB’s suggestions in evaluating whether they have proper procedures and protections in place for military customers.

- Anthony C. Kaye

The District of Columbia Adopts the NMLS Uniform Authorized Agent Reporting (UAAR)

The District of Columbia Department of Insurance, Securities and Banking has begun using the Uniform Authorized Agent Reporting (UAAR) process of the Nationwide Mortgage Licensing System & Registry (NMLS) to satisfy agent reporting requirements. Qualified companies are required to upload information on agents located in the District of Columbia by Friday, June 12, 2015. 

The UAAR functionality allows licensed money service businesses to file a single, uniform report of their authorized agent (i.e., authorized delegates) locations through the NMLS to all participating state agencies. Note that the UAAR process is to be used only by licensed money transmitters and money service businesses who are directed to do so by their state regulator.

For additional information on the reporting process please review the UAAR FAQs.

- 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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