The CFPB Announces Final Diversity Standards under Dodd-Frank Section 342 Are Completed

On April 29, 2015, the Office of Minority and Women Inclusion (OMWI) of the Consumer Financial Protection Bureau (CFPB or Bureau) released its third Annual Report for 2014, as mandated by Section 342(e) of the Dodd-Frank Act (Act). Among other things, Section 342 requires each OMWI covered by the Act to report on its diversity efforts in the past year and develop standards for assessing the diversity policies and practices of entities regulated by the agency.

In the report, the CFPB stated that the six agencies under Dodd-Frank have completed the final diversity policy statement, which now is undergoing final approval by the agencies, signaling that release of the final standards may be imminent. In addition, the CFPB announced that it has united the OMWI and the Office of Civil Rights (formerly the Equal Employment Opportunity Office) under a newly formed Office of Equal Opportunity and Fairness to report directly to CFPB Director Richard Cordray. Director Cordray noted combining these offices “reinforces the importance of equity, diversity, and inclusion in all of the CFPB’s work.”

The balance of the Report addresses measures the CFPB has taken to further principles of diversity within the agency. Regulated entities under the CFPB should take note of these measures, as they suggest steps the CFPB may expect entities to take within their own organizations under the diversity standards. From a governance and workforce perspective, these measures include:

  • An Executive Advisory Council to provide input into OMWI programming and to serve as champions for diversity and inclusion initiatives;
  • A Diversity and Inclusion Council consisting of employees from across the Bureau to advise OMWI on internal, employee-focused issues related to diversity and inclusion;
  • A draft policy and guidance for employees to establish employee resource/affinity groups;
  • Bureau-wide listening sessions to learn more about the employee experience and concerns about diversity, inclusion equality, and fairness;
  • Diversity and inclusion training for employees across all levels and mandatory equal opportunity training for managers;
  • Enhanced supervisory and leadership training for supervisors and managers to ensure the Bureau expands skills and competencies of those required to function at higher levels;
  • Divisional strategic goals, leadership goals, and individual employee competencies focusing on diversity and inclusion within each of the functional areas of the Bureau to build accountability throughout the organization;
  • Training on hiring processes and methods to maximize diversity and inclusion in hiring, including multi-person resume review and diverse interview panels;
  • Language in all job announcements to ensure potential applicants understand the Bureau’s commitment to a diverse and inclusive workplace;
  • Strategic partnerships with colleges, universities, professional organizations, and affinity groups from across the country;
  • Targeted recruitment and outreach to affinity groups, minority- and women-serving institutions, and other minority- and women-focused professional organizations, to build a diverse applicant pool; and
  • Increased communication flow and channels to employees through the OMWI newsletter, the CFPB intranet, as well as e-mails from the Director and the OMWI Director to all staff.

In connection with its efforts to increase supplier diversity, the CFPB focused on ensuring minority- and women-owned businesses are aware of the Bureau’s work and procurement opportunities by implementing the following initiatives:

  • Establishing and developing relationships with key business stakeholders, industry groups, and trade groups;
  • Placing the OMWI Director and other OMWI staff for speaking opportunities on panels at events for diverse suppliers;
  • Distributing educational material aimed at minority- and women-owned businesses;
  • Collaborating with the Office of Procurement on a series of outreach events targeted at minority- and women-owned businesses; and
  • Establishing recurring Supplier Diversity Procurement Workshops.

In addition, the report contains metrics about the extent to which CFPB’s workforce and procurement programs are inclusive of minorities and women.

Brian D. Pedrow and Dee Spagnuolo


Bipartisan House Bill Introduced To Create Temporary Safe Harbor from Enforcement of TILA-RESPA Integrated Disclosure Rules

Republican Congressman Steve Pearce and Democratic Congressman Brad Sherman have introduced a bill in the House of Representatives (H.R. 2213) that would provide lenders with a temporary safe harbor from enforcement of the TILA-RESPA integrated disclosure (TRID) rule which is set to take effect on August 1, 2015.

The bill provides that the TRID rule cannot be enforced against any person before January 1, 2016 and no suit can be filed against any person for a violation of the TRID rule occurring before that date if such person has made a good faith effort to comply with the TRID rule.

The bill is supported by the American Bankers Association. The ABA was among a group of 17 trade associations and organizations that wrote to the CFPB in March 2015 seeking a grace period for enforcement of the TRID rule

- Barbara S. Mishkin


CFPB Files Complaint Against Companies Offering Mortgage Payment Program

In a complaint filed yesterday in a California federal court, the CFPB alleges that two related companies offering a biweekly mortgage payment program and their individual owner engaged in deceptive telemarketing acts or practices that violated the Telemarketing Sales Rule and abusive and deceptive acts or practices that violated the Consumer Financial Protection Act. The complaint seeks redress for harmed consumers, civil money penalties, and injunctive relief.

One of the defendants, Nationwide Biweekly Administration, Inc., is described in the complaint as offering a program called the “Interest Minimizer” under which most consumers who enroll divide their monthly payments in half and remit their payments to Nationwide every two weeks. Nationwide holds the funds and promises to send the consumer’s monthly payment to the lender or servicer before the monthly due date. The other defendant company, Loan Payment Administration LLC, is described in the complaint as offering Nationwide’s services to consumers.

The complaint alleges that (1) because most mortgages require 12 monthly payments but consumers making biweekly payments send Nationwide 26 payments each year, the program results in the equivalent of an extra monthly payment each year; (2) the program also results in three biweekly payments every six months; (3) consumers are charged a setup fee of up to $995 to enroll in the program and per-payment processing fees totaling approximately $84 to $101 annually; and (4) defendants advertised the program online and through direct mail and a television infomercial.

According to the complaint, the defendants’ unlawful conduct included:

  • Falsely representing that consumers could achieve savings without paying more when, in fact, consumers enrolled in the program increased their monthly payment through payment of the initial setup fee and processing fees, plus the equivalent of one additional monthly payment each year.
  • Falsely representing immediate savings that in fact would take many years to achieve and when most consumers would leave the program before realizing any savings.
  • Misleading consumers about the cost of the program by stating in marketing materials that consumers’ extra payments are fully directed to loan principal when, in fact, the company keeps the first extra biweekly payment as the setup fee.
  • Falsely representing that consumers could not achieve similar savings without the defendants’ program.

- Barbara S. Mishkin


Federal Agencies Issue Final Rule on Standards for Appraisal Management Companies

The CFPB along with five other federal agencies have issued a final rule that establishes minimum state registration and substantive requirements for appraisal management companies (AMCs), as required by Section 1473 of the Dodd-Frank Act. AMCs that are a subsidiary of an insured depository institution and are federally regulated (federally regulated AMCs) are subject to the substantive requirements of the rule, but are not subject to state registration or supervision requirements. The final rule also requires states to report to the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examinations Council (FFIEC) information required by the ASC to administer the new national registry of AMCs (AMC National Registry), which includes both state-registered AMCs and federally regulated AMCs. The other federal agencies issuing the rule are the federal banking agencies: the Federal Housing Finance Agency and the National Credit Union Administration (NCUA).

As we previously reported, for purposes of the rule, an AMC is an entity that provides appraisal management services in connection with consumer credit transactions secured by a consumer’s principal dwelling or securitizations of those transactions to creditors or to secondary mortgage participants. In particular, an AMC is a company that meets the statutory panel size threshold, which means a company that oversees an appraiser panel of more than 15 state-certified or licensed appraisers in a single state, or 25 or more state-certified or licensed appraisers in two or more states. An appraiser panel is defined as a network of licensed or certified appraisers approved by an AMC to perform appraisals as independent contractors (i.e., non-W-2 employees) for the AMC. For the purposes of calculating the number of appraisers on an AMC’s appraiser panel, the count is based on the number of appraisers listed on the AMC’s roster who are potentially available to perform appraisals, rather than the number of appraisers actually engaged to perform appraisals.

The minimum registration and substantive requirements established by the final rule apply to states that have elected to establish an appraiser certifying and licensing agency with authority to register and supervise AMCs that meet the standards. The rule does not preclude a state from establishing additional requirements for state-registered AMCs.

The final rule does not require that a state establish an AMC regulatory regime, but there is a significant negative consequence if a state elects not to. If a state has not adopted a regulatory structure after 36 months from the effective date of this final rule, any non-federally regulated AMC would be prohibited from providing appraisal management services for federally related mortgage transactions (i.e., credit transactions involving a federally regulated depository institution) in the state. Furthermore, the federal agencies and the ASC will not serve as a “back-up” regulator to register and supervise AMCs in non-participating states. Consequently, the only AMCs that would be able to provide appraisal management services for federally related transactions in such states would be non-federally regulated AMCs that are below the statutory panel size and federally regulated AMCs. (For a state that does not meet the 36-month timeframe, there is a process for the ASC to delay the restriction on non-federally regulated AMCs for one year if the state has made substantial progress toward implementation of a compliant regulatory system.)

Even if the restriction on non-federally regulated AMCs is triggered in a state, the state may later lift the restriction by adopting a regulatory structure for AMCs at any point after the three-year implementation period has passed.

Among the minimum requirements to be applied by states, the final rule requires participating states to ensure that AMCs: (1) register with or obtain a license from the state and be subject to regulatory supervision; (2) contract with or employ only state-certified or licensed appraisers for federally related transactions; (3) select appraisers who are independent of the transaction and who have the requisite education, expertise, and experience necessary to competently complete appraisal assignments for the particular market and property type; (4) require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP); and (5) establish policies and procedures to ensure compliance with the appraisal independence standards established under Truth in Lending Act.

A federally regulated AMC must comply with the same minimum requirements as state-registered AMCs, but is not required to register with a state. A federally regulated AMC must also register with the AMC National Registry and report directly to the participating state or states in which it operates the information required by the ASC for the AMC National Registry.

Consistent with the proposed rule, the final rule does not require any additional federal registration fees to be paid in connection with registration on the AMC National Registry. According to the preamble, the final rule governs how to calculate the number of appraisers on a panel only for the purposes of determining whether an entity is an AMC subject to the minimum requirements, not for the purpose of determining the annual AMC National Registry fee. Pursuant to the Dodd-Frank Act, it is the ASC, and not the federal agencies, that is responsible for establishing any potential AMC National Registry fee.

In addition, the CFPB believes that the rule does not impose requirements on AMCs (other than federally regulated AMCs), but merely encourages states to adopt the minimum registration and substantive requirements for AMCs. According to the CFPB in the preamble, “the final rule is not prescriptive as to how or when the states must exercise the authority or mechanisms. Exercise of such authority and mechanisms is determined at the discretion of the states, subject to monitoring by the ASC for effectiveness in the judgment or discretion of the ASC.” Thus, it appears that the CFPB’s position is that any fees that are charged to AMCs are attributable to states exercising their implementation authority and/or ASC oversight expectations rather than to the final rule itself.

Note that the AMC minimum standards do not affect the responsibilities of banks, federal savings associations, state savings associations, bank holding companies, and credit unions for compliance with applicable regulations and guidance concerning appraisals. An institution that engages a third party, such as an AMC, to administer any part of the institution’s appraisal program remains responsible for compliance with applicable laws concerning appraisers and appraisals.

As of November 2014, 38 states have passed an AMC licensing and registration law. Thus, with the issuance of the final rule, the federal agencies are stepping up the pressure on the remaining states to adopt a regulatory structure for AMCs.

The final rule will become effective 60 days after publication in the Federal Register. Federally regulated AMCs must comply with the substantive requirements of the rule no later than 12 months from the effective date of the final rule. Participating states will specify the compliance deadline for state-regulated AMCs. Publication of the final rule is expected shortly.

Richard J. Andreano, Jr. and Marc D. Patterson


CFPB Issues Compliance Bulletin on Unlawful Discrimination Based on Receipt of Mortgage Assistance

In a new compliance bulletin (Bulletin 2015-02), the CFPB “reminds” creditors of their obligation not to discriminate against applicants because their income includes vouchers from the Section 8 Housing Choice Voucher (HCV) Homeownership program. The CFPB states in the bulletin that it “has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes. Some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels.”

The Section 8 HCV Homeownership Program was created to assist low-income, first-time homebuyers in purchasing homes and is funded by HUD and administered by participating local Public Housing Authorities (PHA). Through the program, a participating PHA can provide an eligible consumer with monthly housing assistance payments to help pay for homeownership expenses associated with a housing unit purchased in accordance with HUD’s regulations.

In the bulletin, the CFPB references the Equal Credit Opportunity Act (ECOA) and Regulation B prohibition that bars a creditor from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.” The CFPB notes that because “public assistance” as defined by Regulation B includes “mortgage supplement or assistance programs,” mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program for purposes of the ECOA and Regulation B. It also notes the while Regulation B allows a creditor to consider, in a judgmental system of evaluating creditworthiness, whether an applicant’s income derives from any public assistance program to determine a pertinent element of creditworthiness, a creditor may not automatically discount or exclude protected income from consideration and can only discount or exclude such income based on the applicant’s actual circumstances.

The CFPB states that disparate treatment prohibited under the ECOA and Regulation B can exist when a creditor excludes or refuses to consider Section 8 HCV Homeownership Program vouchers as a source of income or accepts the vouchers only for certain mortgage loan products or delivery channels. The CFPB also references the possibility that an underwriting policy can violate the ECOA and Regulation B based on its disparate impact even when a creditor has no intent to discriminate and the practice appears neutral on its face.

The CFPB comments that an institution can better manage fair lending risk in this area through “a clear articulation of underwriting policies regarding income derived from public assistance programs; training of underwriters, mortgage loan originators, and others involved in mortgage loan origination; and careful monitoring for compliance.” 

- Barbara S. Mishkin


OCC Updates Consumer Compliance Examination Manual To Incorporate Integrated Disclosures

The Office of the Comptroller of the Currency has released revised TILA and RESPA chapters of its examination manual for consumer compliance exams. The revised chapters incorporate the detailed procedural and substantive requirements of the CFPB’s TILA/RESPA integrated disclosures (TRID) rule, which is set to go into effect on August 1, 2015. The OCC’s publication of the chapters follows a similar release from the CFPB in April 2015.

The OCC’s versions of the TILA and RESPA chapters appear nearly the same as the CFPB’s, except for minor formatting adjustments and technical changes. While this likely reflects the agencies’ coordination of examination procedures through the Federal Financial Institutions Examination Council, it offers little insight into how, and to what extent, exam priorities may differ for depository institutions, as compared to their non-bank counterparts in the mortgage space.

The other three federal banking agencies—the Federal Reserve, the FDIC, and the NCUA—have yet to update their examination manuals to include the TRID requirements. For the time being, creditors under their supervisory jurisdiction should be able to rely on the versions published to date by the CFPB and the OC.


Arizona Adopts New National SAFE MLO TEST

Arizona is the latest state to announce that it will adopt the new National SAFE Mortgage Loan Originator (MLO) Test with Uniform State Test (UST) Content. The new test will be available for enrollment beginning July 15, 2015.

The National SAFE MLO Test with UST Content first became available on April 1, 2013. With Arizona’s announcement, a total of 47 state agencies have adopted the UST. The remaining state agencies continue to require new MLOs to take state-specific test components, although they may adopt the UST in the future. States with agencies still outstanding include Arkansas, Colorado, Florida, Illinois, Minnesota, Missouri, South Carolina, Utah (Division of Real Estate), and West Virginia.

As we previously reported, California has amended its MLO licensing provisions to permit the state to begin using the new National SAFE MLO Test with UST content. The law is currently being implemented by the California Department of Business Oversight and will be adopted at a future date.

- Marc D. Patterson


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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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