Ballard Spahr Wins Mortgage Banking Association's Inaugural Diversity and Inclusion Leadership Award

Ballard Spahr was honored today with the Mortgage Banking Association's (MBA) first-ever Diversity and Inclusion Leadership Award for Organizational Diversity and Inclusion.

The award recognizes the firm's initiatives designed to increase internal diversity and promote inclusion at all levels. It was presented to firm Chair Mark Stewart at the MBA's annual convention in Boston.

"Our support for diversity and inclusion at Ballard and in the profession is a core principle of the firm that is embraced at every level and in every office," Mr. Stewart said. "We view it not as an obligation, but as an asset that makes us better lawyers and a stronger firm overall."

Ballard Spahr’s efforts are directed by its Diversity and Inclusion Council, which works closely with Virginia G. Essandoh, the firm's Chief Diversity Officer. In addition to hiring diverse lawyers and staff, they focus on retention by promoting inclusion—the effective integration, development, and engagement of all lawyers.

Ballard Spahr's dedication to diversity is reflected in its leadership team. The firm's Elected Board is 20 percent female and 10 percent minority. Four of the firm’s offices are managed by partners of color and two are managed or co-managed by women.

The firm also partners with outside organizations to promote diversity and inclusion. Ms. Essandoh recently was appointed to the MBA's Diversity Council and will speak at the MBA’s Summit on Diversity and Inclusion to be held November 16-17, 2016, in Washington, D.C.

As part of Ballard Spahr’s nationally recognized Consumer Financial Services Group, the Mortgage Banking Group includes more than two dozen attorneys across the firm's offices. They represent clients ranging from start-ups to Fortune 500 corporations in both the residential and commercial mortgage banking industries.

MBA Launches New Networking Platform for Women

Women in the real estate financing sector have a new opportunity to connect with others in their field and to access and exchange information about the industry. On October 18, the Mortgage Bankers Association (MBA) announced the launch of mPower, a professional networking platform that aims to create "a strong, diverse network of women" in the real estate financial industry. In addition to the benefits for women, financial services entities subject to regulation under the Dodd-Frank Act can look to the new MBA networking platform as an initiative for fostering diverse talent in connection with diversity and inclusion (D&I) programs adopted under the Dodd-Frank D&I standards.

The acronym "mPower" stands for MBA Promoting Opportunities for Women to Extend their Reach, and the program is accessible through the MBA website, where members are provided with exclusive access to resources and information, notices regarding upcoming events of interest to women in the industry, and the opportunity to interact with their peers in a private online forum. According to David H. Stevens, president and CEO of the MBA, "addressing the needs of this important segment of our workforce is essential to our industry's success. MBA can be the catalyst for creating a strong, diverse network of women in our industry."

The stated goals of mPower align with the Dodd-Frank D&I standards, which contemplate the "inclusion" component as "a process to create and maintain a positive work environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization." As explained by MBA chief operating officer Marcia Davis, "mPower is designed to recognize and promote the rise of women in the real estate finance industry, as well as the overall workforce. Our goal is to provide information, events, and a networking platform to help women maximize their overall potential."

- Dee Spagnuolo and Brian D. Pedrow

CFPB Mortgage Servicing Rule Amendments Published in Federal Register

The CFPB Mortgage Servicing Rule Amendments were published in the Federal Register yesterday, starting the clock for the effective date of the amended provisions. Most of the provisions are effective on October 19, 2017. The provisions related to successors in interest and periodic statements for borrowers in bankruptcy are effective on April 19, 2018. The published servicing rule amendments can be found here.

The CFPB's accompanying FDCPA Interpretive Rule was also published in the Federal Register yesterday.  As with the servicing rule amendments, the provisions are generally effective on October 19, 2017, and the provisions applicable to successors in interest are effective April 19, 2018.  The published interpretive rule can be found here.

For details regarding the Mortgage Servicing Rule Amendments and the FDCPA Interpretive Rule, please see our previous blog post.

- Reid F. Herlihy

Supreme Court to Resolve Circuit Split Over Filing Bankruptcy Proof of Claim on Time-Barred Debt

The U.S. Supreme Court granted certiorari last week in Midland Funding, LLC v. Aleida Johnson, a decision of the 11th Circuit that held that Midland's filing of a proof of claim in the plaintiff’s bankruptcy case on a time-barred debt violated the Fair Debt Collection Practices Act (FDCPA).

As noted by the petitioner in Midland, the 11th Circuit's holding in Midland conflicts with the decisions of the other federal circuits that have addressed the application of the FDCPA to bankruptcy claims filed on time-barred debts. These circuits have held that the filing of a proof of claim that is accurate but based on a time-barred debt is not a violation of the FDCPA or that such an application of the FDCPA is precluded by the Bankruptcy Code. Most recently, the Fourth Circuit joined the majority view in holding that the filing of accurate proofs of claim on time-barred debts did not violate the FDCPA. The plaintiff in the Fourth Circuit joined in Midland's request for certiorari given the clear and continuing circuit split.

At issue in the Midland appeal are two separate but related questions. The first is whether the filing of an accurate bankruptcy claim—i.e., a claim that a debt is unpaid—can form the basis of a viable FDCPA claim even if, under relevant state law, the statute of limitations has extinguished the creditor's legal remedy to obtain a civil judgment in state court. As noted in the Midland certiorari petition, all circuits except the 11th have held that even though the state court remedy is time-barred, filing an otherwise accurate bankruptcy claim is not prohibited by the FDCPA.

The second question raised by the Midland appeal is whether the federal Bankruptcy Code precludes an FDCPA action based on the filing of a bankruptcy claim for a time-barred debt. In Midland, the 11th Circuit became the first federal circuit to hold that an FDCPA claim premised upon the filing of a bankruptcy claim for a time-barred debt was not precluded by the Bankruptcy Code. The other federal circuit courts that have addressed this question have held that even if the filing of a proof of claim on a time-barred debt could be the basis for an FDCPA claim, such a claim is inherently at odds with and precluded or displaced by the Bankruptcy Code's separate claims allowance and objection process. The Midland petition notes that this question is heavily disputed among various lower courts across multiple circuits.

The Supreme Court's ultimate decision on these two related questions will be closely watched and could greatly impact the bankruptcy claims process.

- The Consumer Financial Services and Bankruptcy, Reorganization and Capital Recovery Groups

FTC Obtains $1.3 Billion Judgment Against Individual Who Operated Payday Lenders

The Federal Trade Commission (FTC) has obtained a $1.3 billion judgment against the individual operator of several payday lenders and related servicing and marketing companies in a lawsuit filed in a Nevada federal district court that alleged the payday loan disclosures given to consumers violated the FTC Act and the Truth in Lending Act (TILA). According to the FTC, the judgment "represents the largest litigated judgment ever obtained by the FTC."

The FTC's complaint, originally filed in 2012, named the individual owner as a defendant together with the payday lenders and other corporate defendants. It alleged that the TILA disclosures given by the lenders understated the amount of a borrower’s repayment obligation because they were based on a borrower's use of a single payment option, rather than on a renewal plan involving multiple payments, in which a borrower would be automatically enrolled unless he or she opted out. According to the FTC, a renewal plan would result in total borrower payments that included a substantially higher finance charge than had been disclosed.

The FTC charged that the existence of the automatic renewal plan and the process for declining renewal involved a convoluted email and hyperlink procedure that was not clearly disclosed. The FTC claimed that the lenders had engaged in deceptive acts and practices in violation of the FTC Act and failed to accurately disclose the annual percentage rate and other loan terms in violation of the TILA.

The lenders had initially challenged the FTC's authority to bring the action based on their tribal affiliation. In March 2014, the district court accepted and adopted the magistrate judge's finding that the FTC Act was a federal statute of general applicability that gave the FTC authority to regulate Indian tribes, as well as arms of tribes, their employees, and their contractors. (For a fuller discussion of the court’s ruling, see our prior legal alert.) In May 2014, the district court granted summary judgment to the FTC on its FTC Act and TILA claims and several of the corporate defendants thereafter entered into settlements with the FTC.

In its order entered on September 30, 2016, the district court entered summary judgment in favor of the FTC on its claim that the individual defendant should be held liable for violations of the FTC Act. According to the court, the evidence abundantly established that the individual defendant participated in and had authority to control the payday lenders and demonstrated, at the very least, that he was recklessly indifferent to the misleading representations made by the lenders.

The $1.3 billion judgment is intended to provide restitution of the amount that, between 2008 and 2012, consumers paid in excess of the disclosed total of payments, i.e., the principal amount and one finance charge. The court agreed with the FTC that, as a matter of law, the FTC did not have to show that all consumers included in the restitution calculation were deceived or relied on the defendants' alleged misrepresentations. In addition to imposing the $1.3 billion judgment, the order permanently bans the individual defendant from engaging in consumer credit-related activity.

- Alan S. Kaplinsky  and Jeremy T. Rosenblum

CFPB Publishes Updated Versions of Small Entity Compliance Guide and Guide to Forms

The CFPB has posted on its TILA-RESPA implementation webpage updated versions of its Small Entity Compliance Guide and Guide to Loan Estimate and Closing Disclosure Forms. The updates focus on various guidance provided in recent TILA/RESPA Integrated Disclosure (TRID) rule webinars provided by the Bureau. We have previously addressed the content of the March 1, 2016, and April 12, 2016, webinars.

Among the changes, the CFPB added the following language to the second guide, apparently to address the issue in the industry regarding whether same payment range must be disclosed in multiple columns for an adjustable rate loan when a rate change can move the payment within the disclosed range, even though the payment range remains the same:

"Adjustable Rate loans – the Projected Payments table will have a new column, up to a maximum of four columns, for each scheduled rate adjustment. Because the Principal & Interest amount may change each time the rate is scheduled to adjust, a new column is required, up to a maximum of four columns. There is a new column, up to a maximum of four columns, even if the range of payments will stay the same. For example, there is a new column, up to a maximum of four columns, even when the range will stay the same because the range is the minimum and maximum interest rate caps listed in the contract. (Comment 37(c)(1)(i)(A)-1)."

- Matthew R. Smith

Mortgage Industry Seeks Exemption Under TCPA

The Federal Communications Commission (FCC) is expected in the near term to decide the fate of an exemption sought by the Mortgage Bankers Association (MBA) over the Telephone Consumer Protection Act's (TCPA) prior express consent requirement.

The TCPA requires a business to obtain the prior express consent of the called party before making an autodialed, artificial voice, or prerecorded call to a wireless telephone number, unless the call is for emergency purposes or solely for the purpose of collecting a debt owed to or guaranteed by the United States. In June, the MBA filed a petition for exemption with the FCC, seeking an exemption from the "prior express consent" requirement for all autodialed or pre-recorded residential "mortgage servicing" calls made to cellular phone numbers that are not charged to the called party and do not contain an advertisement or constitute telemarketing.

In the petition, the MBA notes that under the TCPA, the FCC is expressly authorized to exempt autodialed or prerecorded calls to wireless numbers when the called party is not charged, subject to certain conditions. The MBA further observes that, although some mortgage servicers will be covered by a TCPA exemption established in the 2015 Bipartisan Budget Act, others are not because the exemption only covers debts (including residential mortgages) that are owed to or guaranteed by the United States. Thus, the requested exemption would expand this exemption to cover all residential mortgage servicers; and clarify any discrepancies between the TCPA and other federal and state laws and regulations requiring mortgage servicers to place outbound telephone calls to borrowers at various times throughout the loan. 

According to the petition, the TCPA has created a compliance problem for the mortgage industry because mortgage servicers must communicate with borrowers to fulfill their obligations under a host of federal and state laws and regulations. As stated in the petition, "[m]ortgage servicing calls are required by federal and state laws, regulations and requirements other than the TCPA;" "these requirements were carefully designed by federal agencies and state legislatures … to effectively communicate important information to residential mortgage borrowers to help borrowers avoid foreclosure and its grave financial consequences." In addition, the Consumer Financial Protection Bureau (CFPB), Department of Housing and Urban Development, and Department of Veterans Affairs, among others, all have promulgated rules or standards requiring early intervention and/or outreach calls designed to benefit borrowers and to inform them of potential loss mitigation options. The TCPA, as currently drafted and interpreted, however, impedes the ability of mortgage servicing companies to place such calls (or to send text messages) to the mobile phone lines of their borrowers—in an effort to comply with the referenced rules and requirements—where no "prior express consent" has been obtained. The Petition defines "mortgage servicing" broadly as "all actions, including communications, related to the receipt and application of payments to the terms of any loan or security agreement, execution of other rights and obligations owed under the loan or security agreement, and any other loss mitigation options." 

In a public notice released on August 3, 2016, the FCC invited interested parties to file comments with respect to the MBA's petition.

Significantly, comments submitted to the FCC during the past two months point to a growing consensus in favor of relaxing TCPA requirements governing "mortgage servicing" calls. For example, on September 2, 2016, the American Financial Services Association sent a letter to the FCC supporting the MBA's petition. Also on September 2, the American Bankers Association submitted comments in support of the request to exempt residential mortgage-related calls from the TCPA's "prior express consent" requirements. On September 19, HOPE NOW Alliance, a nonprofit housing counselor, filed a letter in support of the MBA petition, stating that "HOPE NOW has seen firsthand the importance of having access to telephonic communications in a mortgage crisis." Even the CFPB, in comments filed on May 6, 2016, agreed that the TCPA should be updated to allow latitude for servicing calls: "the Bureau agrees that servicing calls can be beneficial to consumers, so long as those calls are otherwise in compliance with applicable consumer protection laws." 

On October 4, 2016, an ex parte Meeting was held between the MBA, along with other industry representatives, and representatives of the Consumer & Governmental Affairs Bureau of the FCC to discuss MBA's petition. According to our sources, a decision by the FCC is expected "in the near term."

- Courtney L. Yeakel

Did you know?

by Wendy Tran

Tennessee Announces Annual Supervision Fee

The Tennessee Department of Financial Institutions has announced the annual supervision fee for non-depository financial institutions for 2016-2017 will be $1,025 for mortgage licensees and flexible credit licensees, and $625 for all other licensees and registrants except mortgage loan originators.

The annual supervision fee is assessed to each person regulated and supervised by the Department's Compliance Division, except for mortgage loan originators. Mortgage loan originators pay a licensing and renewal fee of $100 and sponsorship fee of $100. The annual supervision fee covers the annual licensing or registration fee and costs of routine examinations. Payment of the fee is due at time of application or renewal.

The annual supervision fee was effective as of October 14, 2016.

Copyright © 2016 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.