TRID Rule Amendments and Proposal Published

As we reported previously, on July 7, 2017 the Consumer Financial Protection Bureau (CFPB) posted on its website long awaited amendments to the TILA/RESPA Integrated Disclosure (TRID) rule, and a proposal to address the so-called “black hole” issue (regarding limits on the ability of a credit to reset tolerances with a Closing Disclosure).

Both the amendments and the proposal were published in Federal Register on August 11, 2017. As a result, the amendments become effective on October 10, 2017, with a mandatory compliance date of October 1, 2018, and the comment deadline for the proposal is also October 10, 2017.

- Richard J. Andreano, Jr.

FHFA Announces Reopening and Second Extension of Comment Period for LEP RFI

The Federal Housing Finance Agency has announced that it has reopened and extended until September 1, 2017, the comment period on its Request for Input (RFI) on improving language access in mortgage lending and servicing. The FHFA previously extended the comment period until July 31, 2017.

According to the FHFA, it took this action “to allow interested parties more time to consider additional information on issues facing qualified mortgage borrowers with Limited English Proficiency (LEP) throughout the mortgage life cycle process, including mortgage lending and servicing.”

The FHFA issued the RFI in May 2017, and has stated that it intends to use responses to inform “additional steps that could potentially be taken to further support [LEP] borrowers and the mortgage industry’s ability to serve them throughout the mortgage life cycle.”

- Richard J. Andreano, Jr. and John L. Culhane, Jr.

CFPB Provides First Look at the HMDA Portal

The Consumer Financial Protection Bureau (CFPB) on August 3, 2017, provided the mortgage industry with a first look at the portal to be used for reporting of, and public access to, data under the Home Mortgage Disclosure Act (HMDA). Reporting institutions will use the portal to submit data commencing with the submission of calendar year 2017 data by March 1, 2018. Also, instead of making their HMDA report and modified Loan Application Register (LAR) available to the public, reporting institutions will direct members of the public to the HMDA portal for this information. The CFPB presentation was conducted by Michael Byrne, a Project Director in the agency's Technology Division. The presentation addressed only the data submission aspects of the portal, and not the ability to access HMDA data that is publicly available.

The CFPB created the portal in conjunction with significant revisions to the HMDA rule. As we have reported previously, most of the revisions are scheduled to be implemented on January 1, 2018. Nevertheless, initially the portal will be available only for the submission of the current HMDA data fields, which must be collected for 2017 activity and reported in 2018.

The portal is not yet available. Mr. Byrne advised that the CFPB plans to make a Beta version available around the end of the third quarter, and that the CFPB will use input from the Beta period to revise the portal during the fourth quarter prior to the final version being released. The CFPB also plans to release during the fourth quarter a check digit tool for use in verifying the universal loan identifier, and a geocoder tool.

Once the portal becomes live, those responsible for HMDA reporting at their institutions will need to create an account to access the portal. The portal includes a series of steps to validate the accuracy and correct formatting of the data in an LAR before it can be submitted. The CFPB has a File Format Verification Tool that institutions can use to test whether their 2017 HMDA data is formatted correctly. The CFPB plans to issue a File Format Verification Tool for the revised HMDA data categories. Data for the revised categories will first be collected for the 2018 reporting year, and reported in 2019.

Mr. Byrne advised that for institutions with a smaller volume of loans that elect to use the Excel-based LAR Formatting Tool available on the CFPB website, the CFPB designed the tool to convert the data into the format necessary to submit the data through the HMDA portal. The CFPB plans to issue a version of the LAR Formatting Tool for the revised HMDA data categories later this year.

Institutions that collect HMDA data with multiple LARs will be able to use them to test the data on the portal before submission. However, to submit the data, institutions will need to combine the multiple LARS into a single LAR file.

- Richard J. Andreano, Jr.

FDCPA Bona Fide Error Defense Did Not Protect Debt Collector Despite Following Controlling Precedent, En Banc Seventh Circuit Rules

In a 7-4 en banc decision, the U.S. Court of Appeals for the Seventh Circuit ruled that the bona fide error defense in the Fair Debt Collection Practices Act (FDCPA) did not protect a debt collector who complied with then-controlling Seventh Circuit precedent—which was subsequently overruled by that court.

The FDCPA provides that a debt collector suing to collect a consumer debt must file the lawsuit in the "judicial district or similar entity" where the contract was signed or where the debtor resides. A Seventh Circuit panel ruled in 1996 that the Circuit Court of Cook County, Illinois—which consists of multiple municipal districts—was a single "judicial district" for purposes of the FDCPA's venue provision. In December 2013, the debt collector defendant in Oliva v. Blatt, Hasenmiller, Liebsker & Moore LLC filed a collection lawsuit in the First Municipal District of the Circuit Court of Cook County against the debtor, who resided in the Fifth Municipal District.

In July 2014, while the collection lawsuit was still pending, the Seventh Circuit issued an en banc decision in another case in which it overruled the panel's 1996 decision and held that a "judicial district or similar entity" for purposes of the FDCPA venue provision is "the smallest geographic area that is relevant for determining venue in the court system in which the case is filed." The en banc court also held that its decision applied retroactively.

Although the debt collector's choice of venue for its 2013 lawsuit complied with the 1996 panel decision, it did not comply with the subsequently enacted rule retroactively applied by the en banc court (which would have required the lawsuit to be filed in the Fifth Municipal District). After the debt collector dismissed the lawsuit to comply with the new rule, the debtor filed a complaint in federal court alleging that the defendant was retroactively liable under the FDCPA for filing suit in the wrong venue.

In vacating the district court's grant of summary judgment for the defendant on the grounds that it was protected by the FDCPA's bona fide error defense, the Seventh Circuit concluded that the U.S. Supreme Court's 2010 decision in Jerman v. Carlisle, McNellie, Rini, Kramer &Ulrich LPA did not allow the defense to protect any "mistake of law" regardless of how understandable or reasonable it might have been. According to the majority, even though the defendant was relying "on admittedly substantial precedent," its conduct reflected a mistake in the law because "[t]he fact that different sets of lawyers, including those with judicial commissions, made a legal error does not make it less a legal error."

The dissenting judges disagreed with the majority's characterization of the debt collector's choice of venue as a "mistake of law." In their view, the 1996 panel decision represented the controlling law and the debt collector had correctly interpreted the FDCPA's venue provision in accordance with the controlling law at the time of its conduct. According to the dissent, "[i]t is not a mistake of law to follow controlling law, even when that law is later overruled." The dissent characterized the majority’s ruling—which "punishes [the debt collector] for doing exactly what the controlling law explicitly authorized [the debt collector] to do at the time it did it"—as an "almost surreal inversion of law and logic" that "is not only inconsistent with the FDCPA's bona fide error defense; it is inconsistent with the judicial function and the rule of law."

- Alan S. Kaplinsky, John L. Culhane, Jr., Stefanie H. Jackman, and Christopher J. Willis

Alleged FCRA Violation Sufficiently Concrete for Article III Standing, Ninth Circuit Holds in Spokeo II

On remand from the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit has held in Spokeo v. Robins that an alleged Fair Credit Reporting Act (FCRA) violation was sufficiently concrete to support Article III standing. In its closely watched decision in Spokeo last year, the Supreme Court held that an alleged statutory violation does not automatically give a plaintiff standing, and instead the plaintiff must allege that the violation caused a concrete injury.

In Spokeo, the plaintiff alleged that the defendant, a website operator that compiles consumer data and builds individual consumer profiles, published false information about him on its website in violation of the FCRA. The alleged false information included the plaintiff's age, marital status, wealth, education level, and profession, as well as a photo of a person someone other than the plaintiff.

On remand, the Ninth Circuit was charged with determining whether the plaintiff's alleged harm was concrete enough for standing. The court began by noting the Supreme Court's recognition that some statutory violations, standing alone, establish concrete harm. The court then adopted the Second Circuit's rubric for determining when a statutory violation constitutes sufficiently concrete harm. Specifically, a court must determine whether the statutory provisions at issue were established to protect the plaintiff's concrete interests (as opposed to purely procedural rights), and, if so, whether the specific violations alleged actually harm—or present a material risk of harm to—such interests.

Regarding the first question, the Ninth Circuit concluded that the dissemination of false information in consumer reports—i.e., the harm that the FCRA's procedural requirements were designed to prevent—is concrete harm given the ubiquity and importance of consumer credit reports in many facets of modern life, such as in employment decisions, home purchases, and loan applications. The court also noted that the interests protected by the FCRA resemble other reputational and privacy interests that have long been protected under the law, such as in the areas of defamation and libel.

As for the second question, the Ninth Circuit acknowledged that not every FCRA violation will actually harm—or create a material risk of harm to—the plaintiff's concrete interests. For example, the court stated that an FCRA violation that does not result in the creation or dissemination of an inaccurate consumer report, or one that results in a trivial or meaningless inaccuracy, does not satisfy the applicable standard.

The court, however, did not set forth a bright-line test for when an inaccuracy becomes something more than trivial or meaningless because it concluded that the inaccurate information published about the plaintiff, specifically material inaccuracies about his age, marital status, education, wealth level, and profession, demonstrated a harm to the real-world interests—in this case, the plaintiff's employment prospects—that Congress sought to protect through the FCRA.

The Ninth Circuit's fact-specific analysis of the standing issue may ultimately make it difficult for plaintiffs to obtain class certification, because individualized proof may be required to establish whether each class member suffered sufficiently concrete harm. Also, the court's fact- and statute-specific analysis may limit its applicability to cases arising under other statutes.

This decision is the latest in a number of conflicting circuit court opinions analyzing standing in the wake of the Supreme Court's Spokeo decision, and it remains to be seen whether the Supreme Court will once again step in to try to provide further guidance and clarity to courts, practitioners, and parties.

- Alan S. Kaplinsky, Scott M. Pearson, Burt M. Rublin, Joel Tasca, and Lindsay C. Demaree

Did You Know?

D.C. Adds Student Loan Servicer License to NMLS

On August 10, 2017, the District of Columbia Department of Insurance, Securities and Banking started accepting applications and transition fillings for the Student Loan Servicer License and Student Loan Servicer Branch License on NMLS. More information can be found here.

Maryland Amends Mortgage Loan Originator Provisions

Maryland has amended certain provisions of its financial regulations regarding mortgage loan originators (MLOs), including, but not limited to, the following:

  • Definitions for “average prime offer rate” and “higher-priced mortgage loan” have been revised, and now have the same meaning as stated in 12 CFR Part 1026.

  • New provisions have been added addressing the approval or denial process for obtaining a MLO license. For instance, the Commissioner must approve or deny an application for an initial license, a renewal license, or a license amendment within 60 days after receiving a completed application, which includes a surety bond and required fees. If the Commissioner notifies an applicant that the application is incomplete, the Commissioner must itemize the steps required to complete the application. In the event that the application remains incomplete, and the applicant was given the itemized steps to complete the application and not less than 15 days to correct the incompleteness, the Commissioner may deem the incomplete application withdrawn.

  • New provisions have been added for permitting licensees to conduct mortgage lending business at certain limited locations different from the address appearing on the license. More specifically, an MLO may take a loan application or offer or negotiate terms of a mortgage loan at a location other than the address that appears on the license or licenses of the MLO’s employer if neither the MLO nor the MLO’s employer: (1) owns or leases the location for the purpose of conducting mortgage lending business; (2) indicates or suggests by use of signage that the MLO or the MLO’s employer utilizes the location for taking mortgage loan applications or offering or negotiating terms of mortgage loans; (3) advertises that the MLO or the MLO’s employer takes mortgage loan applications or offers or negotiates terms of mortgage loans at the location; (4) maintains work space, telephone service, or internet service at the location in the name of the MLO or the MLO’s employer for the purpose of conducting mortgage lending business; (5) receives mail relating to the mortgage lending business at the location; or (6) stores books or records relating to the mortgage lending business at the location.

  • New provisions permit loan origination under an expired license—one resulting from not timely renewing the license—in a limited situation where the mortgage loan application was taken or received before the deadline for renewal, and the licensee's employer does not employ any other MLO licensed by the Commissioner.

  • New provisions prohibit the use of false, misleading, or deceptive statements in advertising and/or solicitations. More specifically, an MLO may not publish, or cause to be published, any advertisement, or make or cause to be made any representation, that contains any false, misleading, or deceptive statements regarding the making, brokering, or servicing of mortgage loans, or misrepresents terms, availability, rates, or charges incident to a mortgage loan.

  • New provisions clarify the information required to be published with advertisements and/or solicitation, including the name or approved trade name of the MLO’s employer and the MLO’s NMLSR Unique Identifier.  However, an MLO using social media for advertising purposes is not required to provide this particular information in each statement published through a social media platform, if such information is disclosed prominently on the MLO’s home page within that social media platform.

These provisions are effective as of July 31, 2017.

Utah Amends Residential Mortgage Practices and Licensing Rules

The Utah Department of Commerce, Division of Real Estate, made changes to the Utah Residential Mortgage Practices and Licensing Rules, including, but not limited to:

  • The requirement that an individual applying for a mortgage loan originator (MLO) license must pass a test with a Utah-specific state component has been eliminated. Instead, the individual must pass an examination that consists of a national test with uniform state content.

  • The procedures and requirements to apply for a lending manager license have been clarified. For instance, it has been clarified that within the 12-month period preceding the date of submission of a lending manager application to the division, an applicant must successfully complete certain tasks such as: registering in the nationwide database by selecting the "lending manager" license type and completing the associated MU4 form; authorizing a criminal background check and submitting fingerprints through the nationwide database; authorizing the nationwide database to provide the individual's credit report to the division for review; and paying the lending manager licensing fee. In addition, an applicant must pass both the state and national (general) components of the licensing examination.

  • The experience required for a lending manager license has been clarified and failure to properly document such experience in one of the three methods provided will result in denial of the lending manager application.

  • An individual who passes one test portion of the lending manager examination but fails the other may now retake the failed portion of the exam within 90 days of the date the individual achieves a passing score on the first portion of the exam.

  • The timing of an application for lending manager licensure has been established.  A lending manager applicant has 90 days from achieving a passing score on both portions of the licensing exam and 12 months from completion of pre-licensing education to submit an application for licensure.

  • A new requirement has been added requiring MLOs licensed in Utah on or after May 8, 2017, to complete a division-approved continuing education course for new loan originators prior to renewing at the end of the first full calendar year of licensure.

These provisions were effective on July 11, 2017.

- Wendy T. Novotne

Please note that amendments described in our August 3, 2017, Mortgage Banking Update item “Maryland Amends Mortgage Lender Provisions” are still proposed amendments. It was incorrectly stated that the amendments were already effective.

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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.