CFPB Publishes Informal Guidance on the TRID Rule
For years, the mortgage industry has urged the CFPB to issue informal written guidance on the TILA/RESPA Integrated Disclosure (TRID) Rule, as well as other rules. The CFPB resisted, providing most guidance in the form of actual rules, webinars, or oral statements. Those in the industry believed that it would be a cold day in Hades if the CFPB ever issued guidance similar to the FAQs that the Department of Housing and Urban Development issued to provide guidance on the 2010 Good Faith Estimate rule. It may be more than a coincidence that the CFPB has issued the first four FAQs ever addressing TRID Rule issues on the heels of a severe cold wave.
Three of the four FAQs relate to corrected Closing Disclosures and the three business-day waiting period before consummation, topics that have proven a source of much confusion for creditors. The first FAQ provides that, in the event that there is a change to the disclosed terms after a creditor provides the initial Closing Disclosure, the creditor is required to ensure that the consumer receives a corrected Closing Disclosure at least 3 business days before consummation if:
- the change results in the APR becoming inaccurate;
- if the loan product information required to be disclosed under the TRID Rule has become inaccurate; or
- if a prepayment penalty has been added to the loan.
For other types of changes, the creditor can consummate the loan without waiting three business days after the consumer receives the corrected Closing Disclosure.
The FAQs also address how to handle a situation where an APR decreases (i.e., the previously disclosed APR is overstated). The FAQs state that if the overstated APR is accurate under Regulation Z (i.e., the difference between the disclosed APR and the actual APR for the loan is within an applicable tolerance in Regulation Z), the creditor must provide a corrected Closing Disclosure at or before consummation but a new three-business day waiting period is not required. An inaccurate APR, on the other hand, will trigger a new three-business day waiting period. The FAQ provides additional information related to APR accuracy, including a reference to the Federal Reserve’s Consumer Compliance Outlook. Please note that while the FAQs indicate that there is an APR overstatement tolerance that is tied to an overstated finance charge, various loan investors may not permit correspondent lenders to rely on the tolerance. It is advisable to check with your investor regarding their policy on this issue.
The CFPB’s FAQ clarifies that Section 109(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) does not affect the requirement for providing a revised Closing Disclosure with another three-business day waiting period in cases in which the APR in the prior Closing Disclosure becomes inaccurate based on a decrease in the APR. This section provides that if a creditor extends a second offer of credit to a consumer with an APR that is lower than the APR disclosed in the prior Closing Disclosure, the transaction may be consummated without regard to the 3-day waiting period with respect to the second offer. However, as previously reported, and as noted by the CFPB, Section 109(a) did not create an exception to the TRID rule waiting period because Section 109(a) amends TILA Section 129(b), which only applies to high cost mortgage disclosures. The CFPB adds that TILA Section 128 sets forth a waiting period requirement for other credit transactions, and that such section was not amended by the Act. Clearly, Congress intended to modify the waiting period under the TRID rule, and simply made a technical error. The CFPB should act immediately to reflect the intent of Congress by proposing a rule to eliminate the need for a second three-business day waiting period when the APR in the prior Closing Disclosure becomes inaccurate because of a new offer of credit with a lower APR.
The last of the CFPB’s FAQs states that a creditor’s use of a model form will provide a safe harbor even if the model form does not reflect the changes to the regulatory text and commentary that were finalized in 2017. An appropriate model form must be properly completed with accurate content in order to meet the safe harbor for TRID Rule compliance. In July 2016 the CFPB had proposed to amend the TRID rule to indicate that the industry could not rely on various sample forms included in Appendix H to Regulation Z, but did not adopt the proposal based on significant opposition from the industry, as well as Fannie Mae and Freddie Mac.
For more information on these FAQs, stay tuned for an upcoming episode of the Consumer Finance Monitor Podcast.
- Pavitra BaconCFPB Releases Mortgage Complaint Overview
Last week, the CFPB issued a Complaint Snapshot analyzing mortgage complaint data from November 1, 2016 to October 31, 2018. The report indicates an overall reduction in complaint volume for mortgage products over the time period analyzed.
Mortgage complaints declined by 15%, comparing the 3-month average of complaints from August to October 2017 with the 3-month average from August to October 2018. Similarly, mortgage complaints were down 18% in October 2018, as compared to the rolling 24-month average of complaints from November 1, 2016 to October 31, 2018.
Mortgage complaints declined from 2017 to 2018 in the majority of states (again, when comparing the 3-month average of August-October 2017 with that of August-October 2018). The states which saw an increase in mortgage complaints by this metric were Iowa (+48%), New Hampshire (+38%), New Mexico (+21%), Oregon (+17%), Florida (+7%), Oklahoma (+3%), and Connecticut (+1%). We note that the report excluded data for 12 states in which less than 25 mortgage complaints were received during the time frame covered in the report.
During the time period covered by the report, the CFPB received approximately 71,000 mortgage complaints through its Consumer Response system. As with prior data regarding mortgage complaints, the report shows that the majority of mortgage complaints involve servicing.
The two most common complaint categories were: (1) “trouble during payment process” – 42% of mortgage complaints; and (2) “struggling to pay mortgage” – 36% of mortgage complaints. Complaints classified as “trouble during payment process” alleged a wide range of problems, including issues with periodic statements, incorrect application of payments, incorrect shortages in escrow account analyses, and mishandled payoff statement requests. In the category of “struggling to pay mortgage”, complaints alleged issues such as difficulty receiving assistance following financial hardship, confusing denials of loan modifications, and unresponsiveness from the single point of contact.
The full report can be viewed here.
- Reid F. HerlihyEmployers: No Time Like the Present to Scrutinize Background Check Forms
The time to act is now. Employers should take a look at their background check forms in light of a recent ruling of the U.S. Court of Appeals for the Ninth Circuit that state disclosures cannot be combined with the disclosures required under the Fair Credit Reporting Act (FCRA).
Employers should not rely on background check companies to make the appropriate changes to their forms—a privileged review of background check processes and forms to ensure compliance and mitigate risk now should be in the game plan.
When it comes to background check forms, the FCRA has two fundamental requirements: the disclosure must be "clear and conspicuous" and in a document that consists solely of the disclosure (the standalone requirement). The disclosure in Gilberg v. Cal. Check Cashing Stores, LLC, failed on both points.
The court began with the "standalone" requirement and found that the disclosure at issue—which included state law disclosure requirements along with those required under the FCRA—violated the plain language of the FCRA. The court built upon its prior ruling in Syed v. M-I, LLC, where it held that the word "solely" in the FCRA means the disclosure must be in a standalone document, without extraneous information, like a liability waiver.
If it was not clear to employers before, it is clear now that the disclosure must be a standalone document without extraneous information, like state disclosures. The FCRA permits the authorization to be in the same document as the disclosure, but that is the only statutory exception to the standalone requirement. Background check forms should be reviewed to ensure any state disclosures are separated from the FCRA disclosure and authorization.
The court also examined the "clear and conspicuous" requirement. Although the disclosure was conspicuous—mainly because of the use of capitalized, bold, and underlined headings—the court found that it was not clear for two reasons. First, the court referenced the following sentence, which misused a semicolon:
"The scope of this notice and authorization is all-encompassing; however, allowing CheckSmart Financial, LLC to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law."
Without the semicolon, the sentence might make sense. However, the incorrect grammar was enough for the court to find that the language would not be easily understood by a "reasonable person." Second, the court stated that "the disclosure would confuse a reasonable reader because it combines federal and state disclosures." Specifically pointing out the disclosure provided for New York and Maine, the court explained that applicants in other states might think they are not afforded the same rights as individuals in the listed states—which, in certain circumstances, is inaccurate. Citing this potential confusion, the court found the disclosure form was not clear and, therefore, not consistent with FCRA requirements.
The FCRA provides for statutory penalties, as well as attorneys' fees for violations, and this decision may be more fodder for the plaintiff's bar. Over the past several years, FCRA nationwide class actions have been prevalent and decisions like Gilberg may result in a spike in class actions, especially in the Ninth Circuit.
Ballard Spahr's Labor and Employment Group regularly advises employers on the hiring process and can assist in revising and updating disclosure forms to ensure compliance with the FCRA. The firm's Consumer Financial Services 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, and its skill in litigation defense and avoidance.by Meredith S. Dante, Mark J. Furletti, and Elliot I. Griffin
Petition for Certiorari Filed in Ninth Circuit TCPA Case Accepting Broad Definition of ATDS
The defendant in Marks v. Crunch San Diego has filed a petition for certiorari with the U.S. Supreme Court seeking review of the Ninth Circuit’s September 2018 decision interpreting the TCPA’s automatic telephone dialing system (ATDS) definition.
In Marks, a unanimous Ninth Circuit three-judge panel held that the TCPA’s definition of an ATDS includes telephone equipment that can automatically dial phone numbers stored in a list, rather than just phone numbers that the equipment randomly or sequentially generates. This decision departed sharply from post-ACA International decisions by the Second and Third Circuits, which had narrowed the definition of an ATDS. In its petition for certiorari, Crunch points to the circuit split created by the Ninth Circuit’s decision as a reason for the Supreme Court to grant its petition.
On October 3, 2018, following Marks, the FCC issued a notice asking for comment on what constitutes an ATDS. The request was issued as a supplement to the notice that the FCC had issued in May 2018 in reaction to ACA International seeking comments on several TCPA issues. The comment period on the FCC’s October 3 notice closed on October 24.
Should the Supreme Court grant Crunch’s petition for certiorari in Marks, the FCC might wait for the Supreme Court to issue a decision before it provides any further guidance or interpretations regarding the scope of the ATDS definition. (Conversely, the Supreme Court might prefer to wait for the FCC to weigh in.) Another potential factor impacting the FCC’s timing is the pendency of a Supreme Court decision in PDR Network v. Carlton & Harris Chiropractic. That case involves the TCPA prohibition on unsolicited fax advertisements. The question the Supreme Court agreed to decide is whether the Hobbs Act precluded the district court from conducting a Chevron analysis of the FCC’s TCPA interpretation of what is an “unsolicited advertisement” and instead required it to defer to the FCC rule. Oral argument in PDR Network is scheduled for March 25, 2019.
- Stefanie Jackman and Joel E. TascaCFPB issues annual report on servicemember complaints
The CFPB’s Office of Servicemember Affairs has released its annual report on complaints submitted to the Bureau by servicemembers.
The report covers the period April 1, 2017 through August 31, 2018. During that period, the Bureau received approximately 48,800 complaints from servicemembers, with credit reporting, debt collection, and mortgages, respectively, the first, second, and third most-complained-about financial products or services. The majority of credit reporting complaints involved perceived inaccuracies on servicemembers’ credit reports. The most common type of debt collection and mortgage complaints were, respectively, continued attempts to collect a debt that the servicemember believes is not owed and problems servicemembers faced when unable to make payments, such as issues relating to loan modifications or collections.
The report includes a section entitled “How servicemembers interact with financial products,” which provides examples of the rates at which servicemembers and veterans use common consumer financial products and services, such as checking accounts, credit cards, and auto loans or leases.
Another section of the report, “Emerging issues and continuing trends in the financial marketplace for servicemembers,” discusses various issues experienced by servicemembers and the CFPB’s work in response. These issues include:
- Heightened concern about inaccuracies on credit reports due to new Department of Defense security clearance rules that include a “continuing monitoring” policy under which servicemembers’ credit histories are checked automatically rather than periodically (e.g. every 5 years). The Bureau states that it often hears from servicemembers “who are worried that incorrect information on their credit reports will put their security clearance, duty status, potential promotion, or even military career in jeopardy.”
- Medical debt on credit reports, in part due to greater use by servicemembers of civilian emergency care and outpatient services that require out of pocket payments.
- Difficulty repaying debts owed to the Department of Veterans Affairs.
- Vulnerability of servicemembers to telecommunications debt due to frequent moves and the accompanying need to suspend or cancel and re-establish telecommunications services.
- Confusion resulting from waivers or reductions of annual fees charged to servicemembers in connection with premium credit cards. (The Bureau indicated that once it identified this trend in credit card complaints, it worked with a particular credit card company whose waiver notice to consumers was found to have created the confusion to craft a clarifying letter to affected consumers. The Bureau stated that “since collaboratively addressing the problem through education with an industry partner, we have seen a significant decrease in this specific complaint type about this company.”)
- Student loan servicing problems such as delayed processing of applications for income-driven repayment or misapplied payments and difficulty accessing disability discharge protections.
- Insufficient understanding of auto add-on products, including not understanding that such products are optional, would be added to the amount financed, and with regard to GAP, that the insurance can be voided if the servicemember’s car is taken overseas.
CFPB Announces Senior Leadership Changes
The CFPB has announced several changes in senior leadership. The individuals and their backgrounds as set forth in the CFPB’s press release are as follows:
- Andrew Duke will serve as the Policy Associate Director for External Affairs. Mr. Duke has 27 years of experience in public policy, including 20 years on Capitol Hill serving with three different members of Congress.
- Laura Fiene will serve as West Regional Director. Ms. Fiene joined the CFPB in 2011. Ms. Fiene has more than 31 years of experience in regulating financial services companies, including 27 years dedicated to supervising and examining compliance with federal consumer financial laws and regulations.
- Marisol Garibay will serve as the Acting Chief Communications Officer. Ms. Garibay has 14 years of experience in policy communications focused on financial issues and served most recently as Senior Advisor and Acting Communications Director at the Office of Management and Budget.
- Delicia Reynolds Hand will serve as Deputy Associate Director for External Affairs. Ms. Hand joined the Bureau in 2012 and has 17 years of experience, having worked in consumer advocacy, community development, and on Capitol Hill.
- Lora McCray will serve as Director for the Office of Minority and Women Inclusion. Ms. McCray has 15 years of experience in diversity practice and management, most recently as the Assistant Vice President, Diversity and Inclusion at the Federal Reserve Bank of Boston.
CFPB Issues Home Mortgage Disclosure Act Reference Chart
The CFPB recently issued A Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2019. As previously reported, the Economic Growth, Regulatory Relief, and Consumer Protection Act created an exemption from the reporting of the new HMDA data categories for smaller mortgage loan volume depository institutions and credit unions. The 2019 Chart is updated from the 2018 version to include guidance on how to address data categories that do not have to be reported under the exemption. The 2019 Chart also provides how a lender that elects not to report a Universal Loan Identifier for an application or loan under the exemption would report a Non-Universal Loan Identifier for the application or loan.
Unrelated to the exemption, the 2019 Chart also includes additional guidance on the reporting of the Credit Scoring Model and the reporting of the Automated Underwriting System result.
- Richard J. Andreano, Jr.CFPB Publishes Final Rules on Civil Penalty Adjustments and Allowable Charges for FCRA Disclosures
The CFPB has published two final rules in the Federal Register, one dealing with civil penalty adjustments and the other with allowable charges for FCRA disclosures. Both rules are effective immediately.
Civil penalty adjustments. The CFPB’s final rule finalizes an interim final rule (IFR) it published in November 2016 to create 12 C.F.R. Part 1083, which sets forth the maximum amounts as adjusted annually for civil penalties within the Bureau’s jurisdiction. It also finalizes the CFPB’s October 2018 proposal to add language to Section 1083.1 specifying that the adjusted penalties will apply only to violations that occurred on or after November 2, 2015. The November 2 date is when the 2015 amendment to the Federal Civil Penalties Inflation Adjustment Act of 1990 requiring federal agencies to make annual adjustments to the civil penalties within their jurisdiction was signed into law.
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 final rule sets forth the adjusted maximum amounts that apply to civil penalties assessed after January 31, 2019.
FCRA disclosures. The FCRA provides that where a consumer is not entitled to a free disclosure of information in his or her credit file, a consumer reporting agency (CRA) can impose a reasonable charge for disclosing such information up to the maximum amount allowed by the FCRA. Before Dodd-Frank transferred to the CFPB the FTC’s authority to make annual adjustments to the maximum amount, the FTC made the adjustments by issuing a notice rather than by issuing a rule. That practice was continued by the CFPB. The final rule adds a new section (12 CFR Section 1022.41) to Regulation V to codify that the charge imposed by a CRA for a credit file disclosure to a consumer “shall not exceed the maximum allowable charge set by the Bureau” and to add a new appendix (Appendix O) that the CFPB will amend (by notice) each year to indicate the maximum allowable charge for a new calendar year. The appendix will also provide historical information regarding the maximum allowable charge for prior calendar years.
- Barbara S. MishkinDid You know?
North Carolina FAQs Updated to Address MSR Owners
The North Carolina Office of the Commissioner of Banks recently updated its FAQs to specifically address the need for a Servicer license for entities that merely hold mortgage servicing rights. This reflects a change in the office’s position on the need for a license to own mortgage servicing rights and is, to our knowledge, the only public guidance clarifying the office’s position on this issue. The updated FAQ:
Q: Does a company need to be licensed as a lender or servicer to sell or purchase residential mortgage loans on the secondary market?
A: Although a license is not required to sell or purchase such loans on the secondary market, a buyer who intends to service North Carolina residential mortgage loans must be licensed as a servicer or be exempt under the NC SAFE Act. There is no de minimus servicing exemption in North Carolina. A “master servicer” is a company that contracts with a third party to service residential mortgage loans on its behalf. The third-party servicer is a sub-servicer. In North Carolina, master servicers and sub-servicers must hold a servicer license under the NC SAFE Act.
Ohio Revises Mortgage Lending Act to Cover Servicers and MSR Owners
Effective March 20, 2019, Ohio HB 489 amends the Ohio Residential Mortgage Lending Act (ORMLA) to require a registration for mortgage servicers. Under the amended statute, a “mortgage servicer” is defined as “an entity that, for itself or on behalf of the holder of a mortgage loan, holds the servicing rights, records mortgage payments on its books, or performs other functions to carry out the mortgage holder’s obligations or rights under the mortgage agreement including, when applicable, the receipt of funds from the mortgagor to be held in escrow for payment of real estate taxes and insurance premiums and the distribution of such funds to the taxing authority and insurance company.”
- John D. SocknatCopyright © 2019 by Ballard Spahr LLP.
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