Mortgage Banking Update - November 8, 2018
On October 23, 2018, the Consumer Financial Protection Bureau (CFPB) issued a new report, Complaint Snapshot: 50 State Report, providing a high-level overview of the trends in consumer complaints submitted to the CFPB from January 1, 2015, through June 30, 2018. A few notable trends in the report highlight areas for focus by financial services companies and some predict the report may impact future CFPB rulemaking.
The report discloses that the three most common complaints submitted to the CFPB nationwide were related to credit reporting, debt collection and mortgages. Notably, the volume of consumer reporting complaints grew by 12% from 2016 to 2017, becoming the most common type of complaint. This reminds creditors and debt collectors to review their policies and procedures and be vigilant in requiring the furnishing of complete and accurate data to consumer reporting agencies in the coming year. Also notable is that complaints about prepaid cards trended upward in the beginning half of 2018, while student loan, payday loan and money transfer complaints all trended lower.
Nationally, the top issue reported by consumers by product were categorized as follows:
- Debt Collection: Attempts to collect debt not owed
- Credit or Consumer Reporting: Incorrect information on your report
- Mortgage: Trouble during payment process
- Credit Card: Problem with a purchase shown on your statement
- Checking or Savings: Managing an account
The effect of this report may extend beyond a warning of vigilance to financial service companies as some predict this information may impact future CFPB rulemaking. Indeed, Acting Director Mick Mulvaney previously emphasized the importance of complaint data in determining how to allocate CFPB's resources. The prevalence of consumer complaints concerning "attempts to collect debt not owed" and the importance of consumer complaints in the CFPB's process may prompt the CFPB to include data integrity requirements—addressing the "right consumer, right amount" aspect of the 2016 proposed debt collection rules—in the upcoming debt collection rules, which are scheduled for release by March 2019. Debt collectors and creditors should carefully review the draft rules when they are released in 2019.- Matthew G. Summers and Carol A. DiPrinzio
In June 2018, the U.S Department of Housing and Urban Development (HUD) issued an advance notice of proposed rulemaking (ANPR) seeking comment on whether its 2013 Fair Housing Act disparate impact rule (Rule) should be revised in light of the U.S. Supreme Court's 2015 Inclusive Communities decision. Comments on the ANPR were due by August 20, 2018. The Rule is the subject of a lawsuit originally filed in June 2013 by the American Insurance Association and National Association of Mutual Insurance Companies in the U.S. District Court for the District of Columbia. In April 2016, the trade groups amended their complaint to include a claim that the Rule is inconsistent with the limitations on disparate impact claims set forth in Inclusive Communities. As described more fully below, the district court entered an order last week that contemplates HUD's issuance of a proposal to revise the Rule by December 18, 2018.
Oral argument on the parties' cross-summary judgment motions was initially scheduled for February 13, 2017. However, on February 8, 2017, the court granted in part a motion filed by HUD seeking a continuance of the oral argument to allow the Trump administration to install new HUD and U.S. Department of Justice officials, and continued the argument until a date to be determined by the court. In addition, on February 15, 2017, the court stayed the case pending further discussions between the parties.
On October 19, 2018, the parties filed a joint status report in which the trade groups urged the court to schedule oral argument on the cross summary judgment motions in light of uncertainty as to what HUD's proposal might provide and its refusal to commit not to take enforcement action against the trade groups' members under the Rule.
On October 26, 2018, upon consideration of the joint status report, the court entered a minute order continuing the stay until December 18, 2018, to allow HUD "to issue a Notice of Proposed Rulemaking in response to public comments." The parties were also ordered to file another joint status report by December 18 "updating the Court on the status of HUD's issuance of the rule and proposing any next steps in this litigation."
Disparate impact also appears to be on the CFPB's rulemaking agenda. On October 17, 2018, the CFPB released its Fall 2018 rulemaking agenda. In its preamble to the agenda and a blog post about the agenda, the CFPB indicated that future rulemaking it is considering includes the requirements of the Equal Credit Opportunity Act (ECOA). More specifically, the blog post referenced the Bureau's May 2018 announcement that "it is reexamining the requirements of the [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."- John L. Culhane, Jr.
Compliance with the Telephone Consumer Protection Act (TCPA) continues to present challenges to the financial services industry as a result of uncertain legal standards and contradictory court decisions. In this week's podcast, we discuss the key recent court decisions dealing with the TCPA's autodialer definition and what the FCC is doing to provide further guidance to industry. We’ll also talk about what new FCC guidance might say, how it will impact future court decisions, and strategies for defendants in TCPA litigation to consider using pending the FCC's issuance of new guidance.
To listen and subscribe to the podcast, click here.
While the pace of the Consumer Financial Protection Bureau's (CFPB) fair lending activities has slowed under its new leadership, significant fair lending developments are occurring elsewhere. In this week's podcast, we discuss several of those developments and their broader implications. Our discussion focuses on New York and Connecticut fair lending developments involving auto finance, a private redlining lawsuit, and the FDIC's recent report on the use of digital footprint data for credit underwriting. We conclude with a discussion of a letter recently issued by the U.S. Department of Justice to a Congressman regarding the website accessibility standards that companies must follow to be compliant with the Americans with Disabilities Act.
To listen and subscribe to the podcast, click here.- Barbara S. Mishkin
As part of an investigation launched earlier this year into allegations of redlining in the Philadelphia area, the Pennsylvania Attorney General Josh Shapiro recently called on mortgage borrowers and home loan applicants in the Philadelphia area to file complaints with his office "if they believe they may have been victims of redlining or experienced irregularities when looking for a mortgage or home loan."
As examples of "redlining tactics or irregularities," the AG's press release lists:
- Difficulty getting an in-person appointment with a loan officer;
- Not receiving a written pre-approval or quote promised by the loan officer;
- Not receiving return phone calls from a loan officer; and
- Refusal to provide a loan application after the loan officer learns of the applicant's race, the racial makeup of the neighborhood where the applicant intends to buy the home, or other information relating to the area's racial or ethnic characteristics.
The Pennsylvania AG launched the redlining investigation in response to an investigative article that identified a pattern of discrimination in which African American borrowers were 2.7 times more likely to be denied a home mortgage in Philadelphia than white borrowers. The article found that white applicants received 10 times as many loans as black applicants, even though they made up similar proportions of the population. Based on an analysis of publicly available Home Mortgage Disclosure Act (HMDA) data, the article concluded that black applicants were denied conventional mortgage loans at significantly higher rates than white applicants in 48 cities, including Philadelphia.
The District of Columbia's AG as well as the AGs of other states, such as Washington, Illinois, Iowa, and Delaware, are reported to also be conducting redlining investigations. In 2015, the New York AG entered into a settlement with Evans Bank to resolve a lawsuit filed by the NY AG alleging that the bank had engaged in redlining. HMDA data was recently used by a Connecticut fair housing advocacy group to support redlining claims in a lawsuit filed in Connecticut federal district court alleging that Liberty Bank had engaged in discriminatory mortgage lending in violation of the federal Fair Housing Act.
We expect state AGs to continue to focus on redlining unless and until the Consumer Financial Protection Bureau and/or U.S. Department of Justice re-focus on the issue.- Alan S. Kaplinsky
The Consumer Financial Protection Bureau (CFPB) recently issued a revised version of the Home Mortgage Disclosure (Regulation C) Small Entity Compliance Guide to reflect a partial exemption to Home Mortgage Disclosure Act (HMDA) requirements made by the Economic Growth, Regulatory Relief, and Consumer Protection Act and a related interpretive procedural rule issued by the CFPB. Pursuant to the partial exemption, depository institutions and credit unions are exempted from the new HMDA reporting categories added by Dodd-Frank and the HMDA rule adopted by the CFPB with regard to (1) closed-end loans, if the institution or credit union originated fewer than 500 such loans in each of the preceding two calendar years, and (2) home equity lines of credit (HELOCs), if the institution or credit union originated fewer than 500 HELOCs in each of the preceding two calendar years.
There also are revisions that are not related to the partial exemption. Section 4.1.2 is revised to clarify loans that are not counted when determining if an institution’s lending volume triggers HMDA reporting. The table in Section 5.8 of the Guide regarding the loan amount reported is revised for (1) counteroffer situations when the applicant did not accept or failed to respond to the counteroffer and (2) situations in which an application is denied, closed for incompleteness or withdrawn.- Richard J. Andreano, Jr.
The Federal Trade Commission (FTC) recently issued a paper outlining key takeaways from its December 2017 workshop examining injuries consumers may suffer from privacy and data security incidents.
The paper indicates that the FTC convened the workshop to better understand consumer injury for the following two purposes:
- To allow the FTC to effectively weigh the benefits of governmental intervention against its costs when making policy determinations; and
- To identify acts or practices that "cause or are likely to cause substantial injury" for purposes of bringing an enforcement action under the FTC Act for an "unfair" act or practice.
The paper discusses the examples of informational injuries given by participants. These examples involve injuries that may result from medical identity theft, doxing (i.e. the deliberate and targeted release of private information about an individual with the intent to harass or injure), exposure of personal information, and erosion of trust (i.e. consumers' loss of trust in the ability of businesses to protect their data). The paper also reports that "there was some discussion of whether the definition of injury should include risk of injury [from certain practices]" and shares opposing arguments made by participants.
The issue of whether informational injuries that may result from alleged statutory violations are sufficient to provide a consumer in a private action with Article III standing under the U.S. Supreme Court's Spokeo standard continues to be litigated. In Spokeo, the Supreme Court indicated that, to satisfy the "injury-in-fact" requirement for Article III standing, a plaintiff must show that he or she suffered "an invasion of a legally protected interest" that is both "concrete" and "particularized." To be particularized, an injury must affect the plaintiff "in a personal and individual way." To be concrete, an injury must "actually exist"; it must be "real." However, the Supreme Court also acknowledged that intangible injuries can satisfy the concrete injury standard and that in some cases an injury-in-fact can exist by virtue of a statutory violation. (The Spokeo standard does not apply to government-enforcement actions.)- John L. Culhane, Jr.
Thirty state attorneys general, joined by the AGs of the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, have sent a letter to Consumer Financial Protection Bureau (CFPB) Acting Director Mick Mulvaney "to express our concern about recent reports that the [Bureau] will no longer ensure that lenders are complying with the Military Lending Act (MLA) as part of its regular, statutorily mandated supervisory examinations." Such recent reports included one from the New York Times published in August 2018 indicating that Mr. Mulvaney was planning to eliminate routine supervisory examinations of creditors for MLA violations because the CFPB lacks statutory authority to conduct such examinations.
In addition to describing the benefits that the MLA provides to servicemembers, the AGs assert that the Bureau "would be failing to abide by its statutorily mandated duty to enforce the MLA by restrictively interpreting its examination authority to preclude lenders' compliance with the MLA." They cite to the MLA provision (10 U.S.C. Section 987(f)(6)) that states the MLA "shall be enforced by the agencies specified in section 108 of the Truth in Lending Act, or TILA, (15 U.S.C. 1607) in the manner set forth in that section or under any other applicable authorities available to such agencies by law." Such agencies include the CFPB. The AGs argue that this language allows the CFPB to examine for MLA compliance because "Congress has explicitly provided [in the Consumer Financial Protection Act (CFPA)] that one 'applicable authority' available to the CFPB is examination of lenders in order to 'detect and assess risks to consumers and to markets for consumer financial products and services.'"
The AGs appear to be arguing that the MLA allows the CFPB to use its supervisory authority to "enforce" the MLA. We believe this interpretation is incorrect for at least two reasons. First, TILA Section 108 specifies not only the agencies that can enforce TILA but also the laws they can use to exercise such enforcement authority. For the CFPB, Section 108 specifies that it can enforce TILA under subtitle E of the CFPA, the subtitle that sets forth the CFPB's enforcement powers. Thus, it is apparent from a plain language reading that the phrase "any other applicable authorities" in the MLA refers to any laws that give the CFPB enforcement powers beyond those it can exercise under subtitle E. The CFPB's supervisory authority (which is separately provided in subtitle B of the CFPA) is not a source of additional enforcement powers.
Second, the AGs' argument ignores the CFPA provisions that set forth the scope of the CFPB's supervisory authority. CFPA Sections 1024(b)(1)(A) and 1025(b)(1)(A) provide that the CFPB shall conduct examinations of covered persons to assess compliance with the requirements of "Federal consumer financial laws." Section 1002(14) of the CFPA defines the term "Federal consumer financial law" to mean generally the provisions of the CFPA and the "enumerated consumer laws." Section 1002(12) lists the "enumerated consumer laws." There are 18 federal statutes listed in Section 1002(12). Noticeably absent is the MLA.
Another letter urging Mr. Mulvaney to reconsider his plans to eliminate MLA examinations was sent by all 49 Democratic Senators who also take the position that the CFPB has statutory authority to conduct such examinations. As discussed in our blog post, we think the Senators' interpretation is based on a misreading of the Bureau’s supervisory authority under the CFPA.- John L. Culhane, Jr.
It has been reported that, without announcement or warning, the regulations applicable to third-party debt collectors in Massachusetts may have changed. While the state's Division of Banks (DOB) and the state's Attorney General have traditionally regulated, respectively, third-party debt collectors and first-party creditors, the AG is reported to have changed its website recently to include third-party debt collectors as entities that it regulates.
Such a change could have significant implications because the AG's rules differ from the DOB's rules. For example, the verification requirements under the AG's rules contain more procedures than the DOB's rules. We expect industry trade groups to seek clarification from the DOB and AG.- John L. Culhane, Jr.
NMLS Renewal Period Now Open
A reminder that the NMLS license renewal period opened on November 1, and that there is an Annual Renewal Information section on the NMLS Resource Center website with detailed information regarding deadlines, requirements, and fees. Also, according to the NMLS, 97% of renewals that are submitted in November are processed by December 31, while only 50% of renewals submitted between December 16 and 31 are processed by December 31.- John D. Socknat