Final HMDA rule makes significant changes

As we previously reported, the CFPB has issued a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act. The final rule makes many significant changes, including changes to the rule’s coverage and the data that covered institutions must collect and report. For a detailed discussion of the final rule, see our legal alert.

- Richard J. Andreano, Jr.

Bipartisan Budget Act Creates New TCPA Exemptions

The Bipartisan Budget Act of 2015 (the Act), signed into law by President Obama and effective as of November 2, 2015, amends the Telephone Consumer Protection Act (TCPA) and creates important exemptions for calls made to cellular and residential telephone numbers pursuant to the collection of debts owed to or guaranteed by the United States. 

Prior to the amendment, these calls would have been prohibited absent the recipient’s prior express consent if placed to a cellular telephone and if they were made by an automatic telephone dialing system or included an artificial or prerecorded voice message. Now, such calls, if “made solely pursuant to the collection of a debt owed to or guaranteed by the United States,” no longer require the prior express consent of the recipient.

In addition to the exemption applicable to calls made to cellular telephone numbers, the Act also exempts certain calls to residential telephone lines. The statutory requirement that a caller obtain the called party’s prior express consent before making any call to a residential line if an artificial or prerecorded voice delivers a message is no longer applicable to calls made “solely pursuant to the collection of a debt owed to or guaranteed by the United States.” Likewise, these calls no longer require the called party’s prior express consent. While these residential calls were likely exempt from the TCPA’s prior express consent requirements prior to the enactment of the Act pursuant to regulations issued by the Federal Communications Commission (FCC), it is now clear that no specific consent is required in order to make such residential telephone calls.

The Act also mandates that the FCC prescribe regulations implementing the amendments to the TCPA, in consultation with the Department of Treasury, within nine months from the date of its enactment. The FCC has authority to restrict or limit the number and duration of these calls when made to cellular numbers; however, no such authority is granted for residential numbers.

In addition to possible FCC fines, the TCPA poses significant risk from plaintiffs’ counsel, as it provides for a private right of action, statutory damages of $500 per violation, and treble damages for willful violations. With the TCPA’s potential for significant liability, these amendments are welcome news for servicers and collectors of debts owed to or guaranteed by the United States.

Ballard Spahr’s TCPA Task Force assists clients in navigating the complex and challenging issues that arise under the TCPA. The Task Force, which comprises regulatory attorneys and litigators, provides counsel on TCPA compliance and avoiding TCPA liability, including reviewing policies and practices and helping to design mobile text message and prerecorded and autodialed call campaigns. It also assists clients in handling scrutiny from regulators, including preparing for examinations, responding to investigations, and defending against enforcement actions. Task Force members also defend clients against TCPA class or individual actions.

- Mark J. Furletti, John L. Culhane, Jr., Daniel JT McKenna, and Michael R. Guerrero

Taking Exception with the CFPB’s Attempt to Regulate Lawyers

The CFPB filed a lawsuit against two law firms, The Mortgage Law Group, LLP (MLG) and Consumer First Legal Group, LLC (CFLG), who provided foreclosure assistance to their clients. See CFPB v. The Mortg. Law Grp., Case No. 3:14-cv-00513 (W.D. Wis.). CFPB watchers have been paying careful attention to this 2014 case, as it may influence how future courts interpret the CFPB’s authority to regulate the practice of law. The case has reached the summary judgment stage, with all but reply briefs on file. We wanted to bring this case back into focus, given that the imminent decision is likely to have wide-ranging impact.

The Dodd Frank Act generally prohibits the CFPB from regulating the “practice of law.” 12 U.S.C. §  5517(e)(1) (“[T]he Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law. . . .”) (emphasis added). The prohibition further defines the “practice of law” by the “laws of the state in which the attorney is licensed to practice law.” Id.

But there are two statutory exceptions. The prohibition against regulating the practice of law cannot be construed to limit the CFPB’s ability to regulate a consumer financial product or service “that is not offered or provided as part of, or incidental to, the practice of law. . .,” or that is offered or provided by an attorney who is not providing the consumer with “legal advice or services” in connection with the financial product.  Id. at (e)(2)(A) & (B).   

In the case against MFG and CFLG, the CFPB argues that, because the attorneys were not sufficiently involved in the foreclosure assistance provided to consumers, their activities fall into the second exception.  See id. at (e)(2)(B). Troublingly, the CFPB’s motion for summary judgment does not include a state-by-state analysis of whether the attorneys’ services fell outside the “practice of law” as defined by their respective state bars. Instead, it attempts to define the “practice of law,” for purposes of the second exception, based on an amalgamation of legal authorities.

In an opposition brief filed on October 27, 2015, MFG and CFLG argue that CFPB is attempting to create a federal standard for the “practice of law” that asks, in essence, “could a task be done by a non-attorney?” If so, then the test concludes that the work is not the practice of law and is therefore subject to CFPB regulation under the second statutory exception. But, as MFG and CFLG point out, non-attorneys can perform many legal tasks—like drafting contracts and even trying a case (if pro se)—that are routinely recognized as the “practice of law” when undertaken by, or at the direction of, counsel. The federal standard would allow the statutory exception to all but swallow the general rule that the CFPB cannot regulate the “practice of law,” as defined by each state.

If courts accept the CFPB’s under-inclusive definition of the “practice of law,” the consequences could be far-reaching.  A lawyer even tangentially involved with consumer financial services may find herself subject not only to CFPB enforcement but to CFPB examination, in which the attorney-client privilege is ignored. We eagerly await the Western District of Wisconsin’s decision as we continue to monitor this developing issue. 

- Anthony C. Kaye, Theodore R. Flo, and Lindsay C. Demaree

CFPB Issues Third Financial Literacy Annual Report

The CFPB has issued its third Financial Literacy Annual Report to Congress. The report covers the CFPB’s activities to improve consumer financial literacy during the period from June 2014 through September 2015. The report’s appendix contains a list of the CFPB’s currently available financial education resources, which includes web-based tools, CFPB brochures and other publications, and CFPB research reports.

The report discusses the CFPB’s initiatives as they relate to the two key components of the CFPB’s financial literacy strategy: financial education (which includes “building channels with those who can help reach the public”) and research to identify and build effective financial literacy practices. (The CFPB’s prior annual report identified outreach as a third key component of the CFPB’s strategy. In the new report, the CFPB states that “[w]hile outreach continues to be key to the Bureau’s work, it has become increasingly intertwined with the education initiatives.”)

While there is much to applaud in the CFPB’s financial literacy initiatives, we continue to be disappointed by the CFPB’s failure to educate consumers about the dispute resolution process. As Alan Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group, commented when he presented the industry’s perspective at the CFPB’s March 2015 field hearing on arbitration, the CFPB could play a constructive role by providing consumers with neutral information about how the court system and arbitration works. That information should also include a balanced presentation of both the benefits and drawbacks of class actions. In addition, rather than limiting the use of arbitration, consumer education would be the more appropriate remedy for the CFPB’s statistics that purport to show many consumers are unaware that their disputes became subject to arbitration when they obtained a financial product. More specifically, the CFPB could better educate consumers that they enter into contractual obligations when they obtain credit cards, loans and other consumer financial products and therefore need to carefully review the documents they sign or whose terms they otherwise agree to.

- Barbara S. Mishkin


NMLS Renewal Period Starts Now

The annual NMLS renewal period for 2016 started on November 1, 2015, and ends on December 31, 2015.  State regulators are encouraging licensees to renew their licenses early.  Renewal applications are available online. In addition, for updates and renewal-related news, licensees can follow the State Regulatory Registry’s new Twitter account, @NMLSInfo. 

North Carolina Implements Registration System for Third Party Loan Processors and Underwriters

North Carolina has enacted provisions under the Secure and Fair Mortgage Licensing Act establishing a registration process for entities engaged in third party loan processing and underwriting activities.  Specifically, a company registration will be required for “mortgage origination support registrants,” who are defined as persons engaged exclusively in the processing or underwriting of residential mortgage loans and not engaged in the mortgage business.  The eligibility requirements for registration are generally the same as those for licensure as a mortgage broker, mortgage lender, or mortgage servicer. For instance, applicants must put forward a qualifying individual with at least three years of pertinent mortgage industry experience. Applicants for registration will apply through the Nationwide Mortgage Licensing System and Registry. 

This provision became effective November 1, 2015. 

Connecticut Issues Memorandum Regarding License Requirements for Loan Processors and Underwriters

The Connecticut Department of Banking, Consumer Credit Division (Division) issued a memorandum on October 23, 2015, clarifying its position on licensing requirements for mortgage loan processors and underwriters. The memorandum details the applicable statutory language, and provides certain examples of processing and underwriting arrangements that invoke the license requirement. 

In doing so, the Division signals its intention to pursue administrative actions against unlicensed processors and underwriters, as well as those licensed mortgage lenders, mortgage correspondent lenders, and mortgage brokers that utilize the services of unlicensed entities. The memorandum states that the Division will defer the initiation of administrative actions against licensees if those needing to be licensed in their organizations apply for LPUW licensure on the NMLS by December 31, 2015.

- Wendy Tran and Reid F. Herlihy

Copyright © 2015 by Ballard Spahr LLP.
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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.