Mortgage Banking Update - October 25, 2018
The federal banking agencies recently issued Frequently Asked Questions (FAQs) on appraisal and valuation functions in response to recent questions they received on their real estate appraisal regulations and guidelines. The FAQs replace the 2005 FAQs on appraisal regulations. The agencies involved are the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (Board) and Office of the Comptroller of the Currency (OCC).
The banking agencies advise that the FAQs assemble previously communicated policy and interpretations and do not introduce new policy or guidance. The agencies also state that the FAQs focus on, and should be reviewed in conjunction with:
- their appraisal regulations issued under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (OCC: 12 CFR Part 34, subpart C; Board: 12 CFR Part 225, subpart G and 12 CFR Part 208, subpart E; FDIC: 12 CFR Part 323, subpart A);
- their real estate lending standards (OCC: 12 CFR Part 34, subpart D; Board: 12 CFR Section 208.51 and Part 208, Appendix C; FDIC: 12 CFR Part 365, subpart A, Appendix A);
- the December 2010 Interagency Appraisal and Evaluation Guidelines (the “Valuation Guidelines”); and
- the March 2016 Interagency Advisory on the use of Evaluations in Real Estate-Related Financial Transactions.
The banking agencies note that while the new FAQs incorporate some of the FAQs from 2005, many of the 2005 questions are directly addressed in the Valuation Guidelines and therefore are not included in the new FAQs.- Richard J. Andreano, Jr.
The CFPB’s Fall 2018 rulemaking agenda has been published by the Office of Information and Regulatory Affairs (OIRA) as part of its Fall 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions. (OIRA is part of the Office of Management and Budget.) It represents the CFPB’s second rulemaking agenda under the Trump Administration and Acting Director Mick Mulvaney’s leadership. The agenda’s preamble indicates that the information in the agenda is current as of August 30, 2018, and identifies the regulatory matters that the Bureau “reasonably anticipates having under consideration during the period from October 1, 2018, to September 30, 2019.”
As signaled by Mr. Mulvaney in comments made earlier this week, the preamble indicates that the Bureau is considering “whether rulemaking or other activities may be helpful to further clarify the meaning of ‘abusiveness’ under section 1031 of the Dodd-Frank Act.” Such rulemaking is included on the CFPB’s list of “long-term actions” that is part of the unified agenda.
The preamble further states that the future activity being considered by the Bureau includes “reexamining the requirements of the Equal Credit Opportunity Act (ECOA) in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.” The preamble references the CFPB’s May 2018 statement that was issued following such Congressional disapproval in which the CFPB announced that it was reexamining the ECOA requirements. However, unlike the “abusiveness” rulemaking, the ECOA rulemaking is not included on the CFPB’s list of long-term actions or otherwise listed in its rulemaking agenda.
With regard to the CFPB’s rulemaking to reconsider its final payday/auto title/high-rate installment loan rule (Payday Rule), the Fall 2018 agenda estimates the issuance of a notice of proposed rulemaking (NPRM) in January 2019. (The Spring 2018 rulemaking agenda had estimated issuance of a NPRM in February 2019.) The Payday Rule’s compliance date is August 19, 2019. In the preamble, the CFPB states that it expects to issue a NRPM “by no later than early 2019 that will address reconsideration of the rule on the merits as well as address changes to its compliance date.”
In addition to reconsidering the Payday Rule, the other key rulemaking initiatives listed on the Fall 2018 agenda are:
- Debt Collection. The agenda states that the Bureau “expects to issue [a NPRM] addressing such issues as communication practices and consumer disclosures by spring 2019.” It estimates the issuance of a NPRM in March 2019.
- Business Lending Data. Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business. In May 2017, the CFPB issued a RFI and a white paper on small business lending in conjunction with a field hearing on small business lending. In the Spring 2018 agenda, the Section 1071 rulemaking was included in the list of current rulemakings, with an estimated March 2019 date for prerule activities. The Fall 2018 agenda reclassifies the Section 1071 rulemaking as a long-term action item. In the preamble, the CFPB attributes the rulemaking’s new status to the Bureau’s “need to focus additional resources on various HMDA initiatives.”
- HMDA/Regulation C. The CFPB states that it expects to issue final guidance in late 2018 to govern the disclosure of loan-level HMDA data in 2019. However, to address HMDA data disclosure in future years, the CFPB states that it has decided to add a new notice-and-comment rulemaking to its agenda and estimates a May 2019 date for issuance of a NRPM. The agenda estimates a March 2019 date for the CFPB’s issuance of a NRPM “to address some or all” of the issues related to various HMDA projects under consideration, such as revisiting the Bureau’s 2015 HMDA rule and its August 2018 interpretive rule regarding amendments made to HMDA by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
In addition to DFA Section 1071 rulemaking, the key long-term actions items listed in the Fall 2018 agenda are:
- Inherited Regulations. These are the existing regulations that the CFPB inherited from other agencies through the transfer of authorities under the Dodd-Frank Act. The CFPB indicates that it expects to focus its initial review on the subparts of Regulation Z that implement TILA with respect to open-end credit and credit cards in particular. By way of example, the CFPB states that it expects to consider adjusting rules concerning the database of credit card agreements it is required to maintain by the CARD Act “to reduce burden on issuers that submit credit card agreements to the Bureau and make the database more useful for consumers and the general public.” The CFPB states it may launch additional projects after reviewing the responses it received to its RFIs on the inherited regulations and rules issued by the CFPB.
- Consumer reporting. The Fall 2018 agenda indicates that the Bureau will evaluate potential additional rules or amendments to existing regulations governing consumer reporting, with possible topics for consideration to include the accuracy of credit reports, including the processes for resolving consumer disputes, identity theft, or other issues.
- Consumer Access to Financial Records. In November 2016, the CFPB issued a RFI about market practices related to consumer access to financial information. The Fall 2018 agenda states that the Bureau will continue to monitor market developments and evaluate possible policy responses to issues identified, including potential rulemaking. Possible topics the Bureau might consider include specific acts or practices and consumer disclosures. In addition, the Bureau plans to consider “whether clarifications or adjustments are necessary with respect to existing regulatory structures that may be implicated by current and potential developments in this area.”
- Regulation E Modernization. The Fall 2018 agenda states that the Bureau “will evaluate possible updates to the regulation, including but not limited to how providers of new and innovative products and services comply with regulatory requirements” and that “potential topics for consideration might include disclosure provisions, error resolution provisions, or other issues.”
The Consumer Financial Protection Bureau (CFPB) released its Fall 2018 rulemaking agenda last week, and it included a surprise for those interested in fair lending. Under the section of the associated blog post entitled “Future Planning” appears the following statement:
“The Bureau is considering future [rulemaking] activity with regard to specific areas of consumer financial law of significant public interest. For example, the Bureau announced in May 2018 that it is reexamining the requirements of the Equal Credit Opportunity Act (ECOA) concerning the disparate impact doctrine in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”
This is a very interesting development, because it suggests that the CFPB’s “reexamination” of disparate impact may not merely be a matter of informal interpretation or enforcement/supervision priorities, but may become enshrined in a rule (presumably an amendment to Regulation B). If this happens, its effects would likely be more permanent and widespread than a more informal statement of position relating to disparate impact. A rule, once finalized, would presumably:
- remain in effect indefinitely, until altered by another notice-and-comment rulemaking;
- be binding on other federal agencies (like the Department of Justice) and on courts, as an authoritative interpretation of ECOA;
- survive any leadership change at the CFPB, again subject to the rulemaking process being restarted; and
- prevent the CFPB from applying any different standard for disparate impact retroactively upon a change in leadership at the agency.
So, a disparate impact rulemaking could be very significant over the long term. But what direction might such a rulemaking take?
One possibility would be to remove the “effects test” language from Regulation B (§ 1002.6(a)) and state affirmatively that there is no disparate impact theory of liability under ECOA. There is certainly support in the statutory language, and the reasoning of the Inclusive Communities case, for that result. Indeed, this conclusion was the one highlighted in the House Financial Services Committee’s Unsafe at Any Bureaucracy report, including a chart that shows the distinctions between ECOA and other federal statutes illustrating that there is no language in ECOA to support a disparate impact theory of liability.
Another idea might be to follow the path of the HUD disparate impact rulemaking under the Fair Housing Act, to carefully define the elements of a disparate impact claim in a way that limits application of the theory to more well-settled situations and which gives appropriate deference to reasonable business justifications. See our most recent blog post about the HUD rulemaking here.
A third potential approach would be to flesh out the “robust causality” requirement discussed in Inclusive Communities to require significant proof beyond statistical analysis for any disparate impact claim, which again could serve to curb what the Supreme Court labeled “abusive” claims of disparate impact.
We don’t know what the CFPB may do in this regard, or whether the foreshadowing of an ECOA rulemaking will actually be carried through to completion. If it is, it could be a very significant, long-term development for fair lending law.- Christopher J. Willis
Addressing the Mortgage Bankers Association (MBA) 2018 Annual Convention in Washington, D.C., on October 15, 2018, CFPB Acting Director Mick Mulvaney advised that regulation by enforcement is dead, and that he does not care much for regulation by guidance either. He noted to MBA members that they have a right to know what the law is.
Acting Director Mulvaney advised that if a party is doing something that is against the law, the CFPB will take action against them. However, he pointed out the difference between the CFPB now and its approach under the prior director: If someone is doing something that complies with the law and the CFPB doesn’t like it, the agency will not take action.
With regard to UDAAP, Mr. Mulvaney stated that he believes the concepts of “unfair” and “deceptive” are well established in the law, but that is not so with regard to the concept of “abusive." He said he asked his staff to provide examples of what is abusive that is not also either unfair or deceptive. And he signaled that the CFPB will look to engage in rulemaking on the aspect of abusiveness.
As we have reported the MBA and other trade groups recently sent a letter to the CFPB seeking reforms in connection with the agency’s loan originator compensation rule. When asked by MBA President and CEO Robert Broeksmit about the letter, Mr. Mulvaney advised that he knew the letter was received and that it is being reviewed by staff, but that he had not actually seen the letter. Mr. Broeksmit then handed Mr. Mulvaney a copy of the letter, drawing laughs from the audience.
With regard to payday lending, Mr. Mulvaney advised that such loans can be dangerous for people given the high interest rates, but that people want them so they exist. He said he has told payday lenders they exist because bank regulators forced banks out of the business. But he stated that the OCC has signaled it will allow banks back in, and that the way to fix payday lending is through competition.- Richard J. Andreano, Jr.
While most websites of businesses, including banks and financial services providers, should be accessible to individuals with disabilities, questions exist as to how this requirement is enforced. On September 25, 2018, the U.S. Department of Justice issued a letter to a member of the U.S. House of Representatives in which it took the position that “noncompliance with a voluntary technical standard for website accessibility does not necessarily indicate noncompliance with the ADA.” The DOJ’s position, significantly, does not require conformance with the voluntary Web Content Accessibility Guidelines (WCAG) 2.0 to comply with the ADA in all instances. The DOJ expressly allows for flexibility in how individuals with disabilities are provided access to digital and online content, but does not provide guidance on implementation of such flexibility.
The DOJ’s letter responds to a June 2018 inquiry from House members of both parties that asked the DOJ to “state publicly that private legal action under the ADA with respect to websites is unfair and violates basic due process principles” absent clear guidance from the DOJ on website accessibility. In its response, the DOJ noted that for more than 20 years, the DOJ has interpreted the ADA to apply to websites of places of public accommodation. The DOJ’s response also clarified that the absence of a specific regulation does not mean that websites are not subject to the ADA’s accessibility requirements. The DOJ indicated in its letter a willingness to work with Congress on legislative action to address the increased website accessibility litigation risk faced by businesses.
The flexible approach to website accessibility expressed by the DOJ may provide businesses with the ability to take the position that the ADA does not necessarily require conformance with the WCAG, and that businesses may have the flexibility to provide substantially equivalent access to online information through means other than meeting the WCAG criteria.- Olabisi L. Okubadejo
The U.S. Court of Appeals for the Seventh Circuit has ruled that a plaintiff qualified as a “consumer” who can file a lawsuit for alleged violations of the Fair Debt Collection Practices Act (FDCPA) by a debt collector attempting to collect a debt the plaintiff claimed he did not owe. In light of the court’s expansive reading of who is a “consumer,” additional grounds for dismissal beyond the plaintiff’s status as a “consumer” may be necessary for a debt collector to defeat an FDCPA lawsuit brought by a plaintiff who claims not to owe the debt in question. As a result, the complaints filed in such lawsuits should be thoroughly reviewed by legal counsel to identify other possible grounds for dismissal.
In Loja v. Main Street Acquisition Corporation, the plaintiff filed a lawsuit in federal district court for alleged FDCPA violations against Main Street Acquisition Corporation and the law firm it retained to file a state court collection action against the plaintiff. Main Street sought to collect on a charged-off credit card account it had purchased, which someone had opened under the plaintiff’s name. The plaintiff claimed that the debt was not his and that the collection action was time-barred under state law. After a bench trial, the state court dismissed Main Street’s suit with prejudice but did not provide the grounds for its decision in favor of the plaintiff.
Mr. Loja filed the FDCPA lawsuit and Main Street moved to dismiss, arguing he failed to sufficiently allege that the debt was for personal, family, or household purchases as required by the FDCPA. The district court, however, raising the issue for the first time in the case, dismissed the lawsuit because it concluded the plaintiff did not meet the FDCPA definition of a “consumer,” which is “any natural person obligated or allegedly obligated to pay any debt.” According to the district court, the plaintiff did not satisfy this definition because the phrase “obligated or allegedly obligated” required a plaintiff to allege that he or she actually owed a debt, and the plaintiff claimed he did not.
The Seventh Circuit reversed, holding that the FDCPA’s definition of “consumer” includes consumers “who have been alleged by debt collectors to owe debts that the consumers themselves contend they do not owe.” In the Seventh Circuit’s view, the word “consumer” includes obligations alleged by a debt collector as well as those alleged by consumers. The appeals court observed that this interpretation “conforms to the structure and text of the rest of the FDCPA, which focuses primarily on the conduct of debt collectors, not consumers,” and also “comports with precedent from our own circuit and the Eighth Circuit.” The Seventh Circuit concluded that the district court had improperly dismissed the complaint on the grounds that the plaintiff was not a “consumer” and remanded the case. The court “decline[d] to [otherwise] rule on the sufficiency of the pleadings.”
Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.- Alan S. Kaplinsky, John L. Culhane, Jr. & Stefanie H. Jackman
The CFPB is proposing to issue a final rule on annual adjustments to the civil penalties within its jurisdiction. Comments on the proposal must be received by November 13, 2018.
In November 2016, the CFPB published an interim final rule (IFR) to create 12 C.F.R. Part 1083 which sets forth the penalty amounts as adjusted annually. The adjustments are required by the Federal Civil Penalties Inflation Adjustment Act of 1990 which, pursuant to a 2015 amendment (2015 Amendment), required federal agencies to adjust the civil penalties within their jurisdiction by July 1, 2016 and then to adjust them by January 15 every year thereafter. The civil penalties adjusted annually by the CFPB are the Tier 1-3 penalties set forth in Section 1055 of Dodd-Frank, as well as the civil penalties in the Interstate Land Sales Full Disclosure Act, Real Estate Settlement Procedures Act, SAFE Act, and Truth in Lending Act. The IFR provides that the adjusted penalty amounts “shall apply to civil penalties assessed after July 14, 2016, regardless of when the violation for which the penalty assessed occurred.” (July 14, 2016 was the IFR’s effective date.)
The CFPB adjusted its civil penalty amounts through rules issued in 2017 and 2018 that amended the maximum civil penalty amounts set forth in the IFR. In the supplementary information accompanying the proposal, the CFPB states that in 2017, the OMB issued guidance which provided that “[f]or the 2018 annual adjustment, the new penalty amounts should apply to penalties assessed after the effective date of the annual 2018 adjustment—which shall be no later than January 15, 2018—including, if consistent with agency policy, assessments whose associated violations occurred on, or after, November 2, 2015.” (November 2, 2015 was the date the 2015 Amendment was signed into law.)
Consistent with the OMB guidance, the Bureau is proposing to finalize the IFR to add language specifying that adjusted penalties will apply only to violations that occurred on or after November 2, 2015. The Bureau is also proposing that the final rule would have an effective date no sooner than January 15, 2019, to coincide with, or occur after, the effective date of a 2019 annual adjustments by the Bureau. The new language would provide that the 2019 adjustments “shall apply to civil penalties assessed after January 15, 2019, whose associated violations occurred on or after November 2, 2015.”- Barbara S. Mishkin
The New York Attorney General, on October 12, 2018, filed a notice of an appeal to the Second Circuit from Judge Preska’s dismissal on September 12, 2018 of all of the NYAG’s federal and state law claims, and her subsequent September 18 order amending the September 12 order to provide that the NYAG’s claims under Dodd-Frank Section 1042 were dismissed “with prejudice.” (Section 1042 authorizes state attorneys general to initiate lawsuits based on UDAAP violations.)
On September 14, the CFPB filed an appeal with the Second Circuit from Judge Preska’s June 21, 2018, decision, as amended by her September 12 order, in which she ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional, struck the CFPA (Title X of Dodd-Frank) in its entirety, and dismissed the CFPB from the case. That was followed on September 25 by RD Legal Funding’s filing of a cross-appeal with the Second Circuit from Judge Preska’s June 21 decision, as subsequently amended, in which Judge Preska had ruled that the NYAG had stated federal and state law claims against RD Legal Funding. (Although Judge Preska’s various orders resulted in the dismissal of all of the CFPB’s and NYAG’s claims, RD Legal Funding may have filed the cross-appeal to preserve its ability to challenge Judge Preska’s June 21 ruling that the NYAG had stated claims against RD Legal Funding should the Second Circuit conclude that the CFPB’s structure is constitutional or that the structure is unconstitutional but that the proper remedy is to sever the Dodd-Frank for-cause removal provision rather than strike all of Title X.)
The Bureau’s constitutionality is now before two circuits, the Second and Fifth. In April 2018, the Fifth Circuit agreed to hear All American Check Cashing’s interlocutory appeal from the district court’s ruling upholding the CFPB’s constitutionality. Also, a petition for certiorari was recently filed in the U.S. Supreme Court by State National Bank of Big Spring which, together with two D.C.-area nonprofit organizations that also joined in the petition, had brought one of the first lawsuits challenging the CFPB’s constitutionality.- Alan S. Kaplinsky
Did you know?
CFPB Releases HMDA 2019 Filing Instructions Guide
The CFPB recently released the Filing Instructions Guide for Home Mortgage Disclosure Act (HMDA) data that is collected in 2019 and reported in 2020. Reporting institutions should use the 2018 version of the Filing Instructions Guide for HMDA data collected in 2018 and reported in 2019.- Richard J. Andreano, Jr.
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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.