CFPB Enters Into RESPA Settlement With Title Agent

The Consumer Financial Protection Bureau (CFPB) recently entered into a consent order with Meridian Title Corporation (Meridian) under the Real Estate Settlement Procedures Act (RESPA).

The CFPB found that Meridian is a title insurance agency that issues title insurance policies and provides loan settlement services in connection with residential mortgage transactions that are subject to RESPA. The CFPB also found that three of the eight owners of Meridian are the owners and executives of Arsenal Insurance Corporation (Arsenal), a title insurance underwriter. As a result, the CFPB asserted that Meridian and Arsenal are in an affiliated business arrangement under RESPA. The CFPB also asserted that because of the relationship between Meridian and Arsenal, in some cases when Meridian referred title insurance business to Arsenal as a title agent of Arsenal, Meridian was able to retain more than the standard commission provided for in its agency contract with Arsenal.

The CFPB concluded that Meridian violated the referral fee prohibition under RESPA section 8 when it "received things of value—money beyond Arsenal's contractual commission allowance—pursuant to an agreement or understanding that it would refer business to Arsenal by recommending homebuyers to use its affiliated business Arsenal for title insurance."

The CFPB also addresses an aspect of the affiliated business arrangement provisions of RESPA section 8 and Regulation X, the regulation under RESPA. Regulation X provides that an affiliated business arrangement does not violate RESPA section 8 when the three conditions of the affiliated business arrangement exemption are satisfied. One condition is that a written disclosure of the affiliated business arrangement must be provided to a person being referred to a settlement service provider by the party making the referral. The written disclosure commonly is referred to as an "affiliated business arrangement" disclosure or notice. Generally, when the referral is made by a party other than a lender, the disclosure must be provided at or before the time of the referral. The CFPB asserts that from 2014 to 2016, Meridian did not provide an affiliated business arrangement disclosure to consumers. The CFPB did not expressly assert that the disclosure was not provided when Meridian referred consumers to Arsenal for title insurance business, but from the asserted facts that is the only context in which the disclosure would be required.

Meridian agreed to pay $1.25 million to provide redress to affected consumers. Meridian also agreed to maintain and support a compliance oversight board committee to ensure that:

  • Meridian's policies and procedures are reasonably designed to ensure compliance with RESPA, including affiliated business arrangement disclosure requirements;

  • all affiliated business arrangement disclosure forms are sent to consumers at or prior to the acceptance of any title or settlement order, where Arsenal is selected as the title insurance underwriter; and

  • all of Meridian's executives and staff are trained in RESPA, including affiliated business arrangement disclosure form requirements and Meridian's related compliance management system.

The consent order also addresses the responsibilities of Meridian's board in connection with the order, and provides that the board "will have the ultimate responsibility for proper and sound management of [Meridian] and for ensuring [Meridian] complies with" the order.

  - Richard J. Andreano, Jr.

CFPB Updates HMDA Rule Guidance Materials

The Consumer Financial Protection Bureau (CFPB) recently posted on its website updated versions of guidance in connection with revisions to the Home Mortgage Disclosure Act (HMDA) rules that become effective on January 1, 2018.

The CFPB updated the key dates timeline, 2018 HMDA institutional coverage chart, and 2018 HMDA transactional coverage chart to reflect the temporary increase in the threshold to report home equity lines of credit (HELOCs). In the original version of the revised HMDA rules, an institution that originated at least 100 HELOCs in each of the prior two years would need to report HELOCs for the current reporting year. For example, an institution that made at least 100 HELOCs in each of 2016 and 2017 would have to collect and report data on HELOCs for 2018. As previously reported, the CFPB temporarily increased the threshold from 100 to 500 HELOCs for 2018 and 2019, and will assess the appropriate reporting threshold to be implemented in 2020.

- Richard J. Andreano, Jr.

CFPB Updates TRID Rule Small Entity Compliance Guide

The CFPB recently released a revised version of the TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide.

The revised version incorporates the recent amendments to the rule that became effective on October 10, 2017. Compliance with the amendments will be required for applications received on or after October 1, 2018.

The amendments also clarified that the separate escrow cancellation notice and partial payment disclosure requirements under Regulation Z will apply to all covered loans on October 1, 2018, regardless of when the application is received.

- Richard J. Andreano, Jr.

House Financial Services Committee Schedules Oct. 11 Mark-Up of "Madden fix" Bill

Among the more than 20 bills that the House Financial Services Committee was scheduled to mark up Wednesday, October 11, was a bill to provide a "Madden fix" as well as several others relevant to consumer financial services providers:

  • H.R. 3299, "Protecting Consumers' Access to Credit Act of 2017." In Madden, the Second Circuit ruled that a nonbank that purchases loans from a national bank could not charge the same rate of interest on the loan that Section 85 of the National Bank Act allows the national bank to charge. The bill would add the following language to Section 85: "A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary."

  • This language is identical to language in a bill introduced in July 2017 by Democratic Senator Mark Warner as well as language in the Financial CHOICE Act and the Appropriations Bill that is also intended to override Madden. Like those bills, H.R. 3299 would add the same language (with the word "section" changed to "subsection" when appropriate) to the provisions in the Home Owners' Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act, which provide rate exportation authority to, respectively, federal savings associations, federal credit unions, and state-chartered banks. In the view of Isaac Boltansky of Compass Point, the bill is likely to be enacted by this Congress.

  • H.R. 2706, "Financial Institution Consumer Protection Act of 2017." This bill is intended to prevent a recurrence of "Operation Chokepoint," the federal enforcement initiative involving various agencies, including the DOJ, the FDIC, and the Fed. Initiated in 2012, Operation Chokepoint targeted banks serving online payday lenders and other companies that have raised regulatory or "reputational" concerns. The bill includes provisions that (1) prohibit a federal banking agency from (i) requesting or ordering a depository institution to terminate a specific customer account or group of customer accounts, or (ii) attempting to otherwise restrict or discourage a depository institution from entering into or maintaining a banking relationship with a specific customer or group of customers unless the agency has a material reason for doing so and such reason is not based solely on reputation risk, and (2) require a federal banking agency that requests or orders termination of specific customer account or group of customer accounts to provide written notice to the institution and customer(s) that includes the agency's justification for the termination. (In August 2017, the DOJ sent a letter to the chairman of the House Judiciary Committee in which it confirmed the termination of Operation Chokepoint. Acting Comptroller Keith Noreika, in remarks last month in which he also voiced support for "Madden fix" legislation, indicated that the OCC had denounced Operation Choke Point.)

  • H.R. 3072, "Bureau of Consumer Financial Protection Examination and Reporting Threshold Act of 2017." The bill would raise the asset threshold for banks subject to CFPB supervision from total assets of more than $10 billion to total assets of more than $50 billion.

  • H.R. 1116, "Taking Account of Institutions with Low Operation Risk Act of 2017." The bill includes a requirement that for any "regulatory action," the CFPB and federal banking agencies must consider the risk profile and business models of each type of institution or class of institutions that would be subject to the regulatory action and tailor the action in a manner that limits the regulatory compliance and other burdens based on the risk profile and business model of each. The bill also includes a look-back provision that would require the agencies to apply the bill's requirements to all regulations adopted within the last seven years and revise any regulations accordingly within three years. A "regulatory action" would be defined as "any proposed, interim, or final rule or regulation, guidance, or published interpretation."

  • H.R. 2954, "Home Mortgage Disclosure Adjustment Act." The bill would amend the Home Mortgage Disclosure Act to create exemptions from HMDA's data collection and disclosure requirements for depository institutions with respect to (1) closed-end mortgage loans, if the institution originated fewer than 1,000 such loans in each of the two preceding years, and (2) open-end lines of credit, if the institution originated fewer than 2,000 such lines of credit in each of the two preceding years. (An amendment in the nature of a substitute would lower these thresholds to fewer than 500 closed-end mortgage loans and fewer than 500 open-end lines of credit.)

  • H.R. 1699, "Preserving Access to Manufactured Housing Act of 2017." The bill would amend the Truth in Lending Act (TILA) and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) to generally exempt a retailer of manufactured housing from TILA's "mortgage originator" definition and the SAFE Act's "loan originator" definition. It would also increase TILA's "high-cost mortgage" triggers for manufactured housing financing.

  • H.R. 2396, "Privacy Notification Technical Clarification Act." This bill would amend the Gramm-Leach-Bliley Act's requirements for providing an annual privacy notice. (An amendment in the nature of a substitute is expected to be offered.)

- Barbara S. Mishkin


California Makes Changes to the Finance Lenders Law

Recently, several changes were made to the California Finance Lenders Law with various effective dates. Effective immediately, the California Finance Lenders Law has been renamed the "California Financing Law."

In addition, definitions have been added, including, but not limited to:

  • "Assessment contract" means an agreement entered into between all property owners of record on real property and a public agency in which, for voluntary contractual assessments imposed on the real property, the public agency provides a PACE assessment for the installation of one or more efficiency improvements on the real property in accordance with a PACE program.

  • The "PACE program" refers to a program where the financing is provided for the installation of efficiency improvements on real property and funded through the use of property assessments, as well as other program components, established under certain sections of the Streets and Highways Code, Mello-Roos Community Facilities Act, or a charter city's constitutional authority.

  • "PACE solicitor" means a person authorized by a program administrator to solicit a property owner to enter into an assessment contract.

  • "PACE solicitor agent" means an individual who is employed or retained by, and acts on behalf of, a PACE solicitor to solicit a property owner to enter into an assessment contract.

  • A "program administrator" refers to a person administering a PACE program on behalf of, and with the written consent of, a public agency. It does not include a person who meets both of the conditions that: (1) the person does not administer a PACE program that provides financing for the installation of efficiency improvements on residential property with four or fewer units; and (2) the person does not administer a PACE program that provides financing for the installation of efficiency improvements on real property with a market value of less than $1 million.

Starting on April 1, 2018, a program administrator cannot approve an assessment contract for funding and recording by a public agency unless the program administrator can make a reasonable, good-faith determination that the property owner has an ability to pay the PACE assessments. Certain criteria must be met and verified relating to the property, property owner, financing terms, and assessment contract terms. In addition, program administrators must comply with the requirements of the California Financial Information Privacy Act.

Effective January 1, 2019, program administrators must be licensed under the California Financing Law. As such, program administrators would have to comply with similar requirements imposed upon licensed finance lenders and brokers. For instance, a program administrator must conduct his or her business in a similar fashion, display his or her license, maintain records, file an annual report under oath, and refrain from making false or misleading statements and representations. Program administrators would be subject to examinations made by the commissioner and if applicable, disciplinary actions. Additionally, program administrators must establish and maintain a process for the enrollment of PACE solicitors and PACE solicitor agents and the compliance of PACE solicitors and PACE solicitor agents with the requirements of applicable law.

More information can be found here.

Illinois Revises Residential Mortgage License Act Provisions

The Illinois Department of Financial and Professional Regulation adopted rules to repeal and amend parts of the Residential Mortgage License Act, including, but not limited to:

  • The renewal application provisions were removed due to a conflict with the 30-day timely renewal application deadline.

  • The paper surety bond requirements were removed in light of the new electronic surety bond (ESB) requirement that Illinois has adopted through the NMLS.

  • References are made to the TILA-RESPA Integrated Disclosure (TRID) Loan Estimate form, replacing the Good Faith Estimate form in most residential mortgage transactions.

  • Servicers may now retain their records in electronic or digital format instead of paper form.

  • The provisions regarding changes affecting loan in process and approval notice were repealed to reflect the new CFPB-required notifications to consumers of loan term changes in TRID process.

  • A provision was added to ensure compliance with other laws including applicable federal and state statutes and regulations, including the TILA-RESPA Integrated Disclosures, Truth in Lending Act, and Real Estate Settlement Procedure Act.

These provisions are effective immediately.

Oregon to Add Licenses to NMLS and Adopts Electronic Surety Bonds

Starting on November 1, 2017, the Oregon Division of Financial Regulation will accept applications for the Mortgage Servicer License and the Debt Buyer License on NMLS. The checklists for these licenses will be available here shortly.

In addition, on November 1, 2017, the Division will start using the new Electronic Surety Bonds (ESB) through NMLS. More information on the ESB is available here.

- Wendy T. Novotne

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