Mortgage Banking Update
In this issue:
- Inside the Beltway: Housing Reform in 2019?
- Seila Law to Seek U.S. Supreme Court Review of Ninth Circuit Ruling That CFPB’s Structure is Constitutional
- FTC Provides 2018 Enforcement Report to CFPB
- Democratic Senators Seek Information About Discrimination by Lenders Using Algorithms
- CFPB Provides Highlights of First Six Months Under Director Kraninger’s Leadership
- HUD Says “No” to DACA Recipients
- RD Legal Funding Files Opening Brief in Second Circuit
- DOJ Settles Redlining Lawsuit Against First Merchants Bank
- FDIC 2018 Consumer Compliance Supervisory Highlights Focuses on Overdraft, RESPA, Regulation E, Deferment, and Finance Charge Calculation Exam Findings
- Did You Know?
- Looking Ahead
Now midway through the first session of the 116th Congress, the House and Senate have yet to act on housing reform legislation. Most recently, Mark Calabria, Director of the Federal Housing Finance Agency (FHFA), announced that Congress should move forward with reform legislation and set a path to end the conservatorships of government-sponsored enterprises Fannie Mae and Freddie Mac (the GSEs). The Senate Banking Committee also held a hearing on June 25 to debate the issue of whether these GSEs should be designated as systemically important financial institutions, or SIFIs, and thus subject to more stringent oversight and regulation.
The GSEs have been under government conservatorships for 11 years, and there is an ongoing debate about how to restructure them to best stabilize the housing market and continue to serve a broad national market. Calabria wrote on June 11, 2019, in the FHFA 2018 Report to Congress that "it will be critical to set a path for ending the conservatorships of the Enterprises in the near future while working with Congress and the Administration to transition to a reformed housing finance system." He noted his support for Congress to pursue reform that will "reduce the risk to the taxpayer, promote private sector competition, and support sustainable homeownership."
As noted in the Senate Banking hearing by Senator Warner (D-VA), housing reform is a complicated issue. We have observed over the years as efforts to negotiate bipartisan legislation have failed in both the House and Senate. Due to this stalemate, Calabria may choose to work around Congress and pursue reform through administrative actions. He has recently claimed that he does not need to wait for Congress to act and that his goal is for the GSEs to begin the process of exiting federal control in 2020 and start building capital. Calabria has said he will be releasing the Trump administration's housing reform plan in coordination with the Treasury Department this summer.
Until then, we can expect Congress to continue holding hearings and debating the best approach to housing reform with the hope they can work closely with the administration to make sound decisions. A potential point of contention between administration officials and Congress, especially House Democrats, will be the extent of ensuring a government-guaranteed backstop is in place. Calabria has said he would support an explicit guarantee that is "limited, clearly defined, and paid for," but Democrats are pushing aggressively for a more robust backstop. Resolving this policy difference may be the most significant impediment to finalizing any bipartisan housing reform package.
Appellant Seila Law has filed a motion for a stay of the Ninth Circuit's mandate in its decision ruling that the CFPB's single-director-removable-only-for-cause structure is constitutional pending the filing by Seila Law of a petition for a writ of certiorari with the U.S. Supreme Court. Seila Law has not sought a rehearing en banc by the Ninth Circuit.
Appellant Seila Law had asked the Ninth Circuit to overturn the district court's refusal to set aside a Bureau civil investigative demand, arguing that the CID was invalid because the CFPB's structure is unconstitutional. In rejecting the constitutional challenge, the Ninth Circuit relied on U.S. Supreme Court precedent, which in the Ninth Circuit's view, "indicate that the for-cause removal restriction protecting the CFPB's Director does not 'impede the President's ability to perform his constitutional duty' to ensure that the laws are faithfully executed." The Ninth Circuit commented that "the Supreme Court is of course free to revisit those precedents, but we are not."
In support of its motion, Seila Law argues that there is a reasonable chance the Supreme Court will grant the petition because "the question of whether the CFPB's structure violates the constitution's separation of powers is 'substantial' under any sense of the term" and because the question "has engendered serious debate among federal judges." It also argues that there is good cause for the stay because, in the absence of a stay, Seila Law would have to decide whether to comply with the CFPB's CID, thereby potentially mooting the case.
There is currently no circuit split regarding the CFPB's constitutionality, with both the Ninth Circuit and the en banc D.C. Circuit having ruled that the CFPB's structure is constitutional. Two other cases involving a challenge to the CFPB's constitutionality are currently pending in the circuit courts, either of which could create a circuit split. On March 12, the Fifth Circuit heard oral argument in All American Check Cashing's interlocutory appeal from the district court's ruling upholding the CFPB's constitutionality. The other case is RD Legal Funding, which is pending in the Second Circuit but in which briefing has not yet been completed. The district court in RD Legal Funding held that the CFPB's structure is unconstitutional and struck the CFPA (Title X of Dodd-Frank) in its entirety.
While the CFPB has defended its constitutionality to date, it may be unable to oppose Seila Law's petition for certiorari. Dodd-Frank Section 1054(e) provides:
The Bureau may represent itself in its own name before the Supreme Court of the United States, provided that the Bureau makes a written request to the Attorney General within the 10-day period which begins on the date of entry of the judgment which would permit any party to file a petition for writ of certiorari, and the Attorney General concurs with such request or fails to take action within 60 days of the request of the Bureau.
The Ninth Circuit's judgment was entered on May 6, and we are not aware of a request by the CFPB to the Attorney General to represent itself before the Supreme Court. Thus, assuming the CFPB has not made such a request, only the Department of Justice could respond on behalf of the CFPB to Seila Law's petition for a writ of certiorari. The DOJ, however, has previously taken the position that the CFPB's structure is unconstitutional and that the proper remedy is to sever the Dodd-Frank Act's for-cause removal provision.
More specifically, the DOJ took that position in opposing the petition for a writ of certiorari filed in September 2018 by State National Bank of Big Spring and two D.C. area non-profit organizations that sought Supreme Court review of a D.C. Circuit decision upholding the CFPB's constitutionality. Despite agreeing on the merits with SNB and the other petitioners that the CFPB's structure is unconstitutional, the DOJ filed a brief in which it argued that the Supreme Court should nevertheless deny the petition because the SNB case was a poor vehicle for consideration of the constitutionality question. The DOJ pointed to other cases then pending in the courts of appeal that raised a similar constitutional challenge but would be a better vehicle. In addition to All American Check Cashing and RD Legal Funding, the DOJ pointed to Seila Law which was then still pending in the Ninth Circuit. SNB's petition was denied by the Supreme Court.
Thus, the DOJ might not oppose Seila Law's petition for a writ of certiorari and instead agree with Seila Law that the CFPB's structure is unconstitutional. It is also possible that given the importance of the issue, the Supreme Court would grant Seila Law's petition even in the absence of a circuit split. Should it do so, it could be necessary for the Supreme Court to appoint an amicus curiae to defend the Ninth Circuit's judgment, an action that is part of the Supreme Court's usual practice when no party is defending the circuit court's judgment.
The Federal Trade Commission recently provided its annual letter to the CFPBconcerning its enforcement activities relating to compliance with Regulation Z (Truth in Lending Act), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act). Under Dodd-Frank, the FTC retained its authority to enforce these regulations with respect to entities subject to its jurisdiction. The FTC and CFPB coordinate their enforcement and related activities pursuant to a MOU entered into in 2012, reauthorized in 2015, and extended in 2018. The new letter, which covers the FTC's activities in 2018, responds to the CFPB's request for information and focuses on three areas: enforcement actions, research and policy work, and consumer and business education.
On June 12, 2019, from 12:00 PM to 1:00 PM ET, Ballard Spahr will hold a webinar, "Is the FTC the New CFPB?" For more information and to register, click here.
Regulation Z/TILA; Regulation M/Consumer Leasing Act. The FTC's TILA and CLA enforcement activities included:
- With respect to auto credit and leasing: (1) initiating an action in federal district court involving the alleged failure of four auto dealers to disclose required credit and leasing terms in social media advertisements, and (2) mailing checks as redress to consumers following the settlement of a federal court action against nine dealerships and owners who had allegedly used advertisements that made misleading claims about the availability of vehicles at the advertised prices and financing terms. The dealerships and owners were alleged to have violated TILA and Regulation Z by not clearly disclosing required credit information in advertisements.
- With respect to payday lending: (1) the affirmance by the Ninth Circuit of a "record-setting" $1.3 billion dollar district court judgment and order against an individual and several corporate defendants for alleged TILA and FTC Act violations in connection with payday loans, and (2) mailing checks to consumers following the settlement of charges against two individuals and their companies who had allegedly made unauthorized loans to consumers and provided incorrect disclosures in connection with such loans.
- With respect to consumer electronics financing, the FTC continued litigation against a consumer electronics retailer for violating a consent order that settled allegations that the retailer had violated TILA by failing to provide written disclosures and account statements to consumers.
The FTC reported that its TILA and CLA research and policy efforts included (1) conducting a study of consumers' experiences related to buying and financing automobiles at dealerships, (2) working on military consumer protection issues through its Military Task Force, (3) hosting a symposium on the economics of consumer protection, and (4) issuing blog posts providing information to consumers and businesses.
Regulation E/EFTA. The FTC's Regulation E enforcement actions included seven new or ongoing cases. Six cases involved negative options and the payment terms that automatically applied absent cancellation for which the companies involved allegedly had not obtained proper written authorization under Regulation E or provided copies of written authorizations to consumers. One case involved allegations that a consumer electronics retailer had conditioned the extension of credit on mandatory preauthorized transfers in violation of the EFTA and Regulation E.
With respect to EFTA research and policy work, the FTC worked with a Department of Defense interagency group and the ABA on electronic fund transfer issues, including issues relating to preauthorized electronic fund transfers in the military lending rule.
Democratic Senators Elizabeth Warren and Doug Jones have sent a letter to the CFPB, Federal Reserve, OCC, and FDIC expressing concern that Fintech and traditional lenders using algorithms in their underwriting processes may be engaging in unlawful discrimination. (Such algorithms are often referred to as "artificial intelligence.")
In their letter, the Senators reference research results showing that "the algorithms used by FinTech lenders are as discriminatory as loan officers." They state that "the federal government will have to take action to ensure that antidiscrimination laws keep up with innovation."
The Senators request answers by June 24 to a series of questions, including what the agencies are doing "to identify and combat lending discrimination by lenders who use algorithms for underwriting" and what analyses the agencies have conducted or plan to conduct regarding "the impact of FinTech companies or use of FinTech algorithms on minority borrowers, including differences in credit availability and pricing."
To mark the first six months of Kathy Kraninger's tenure as CFPB Director, the CFPB issued a press release providing highlights of the Bureau's activities during that period.
The activities highlighted are those in the areas of consumer financial education, supervision, enforcement, and rulemaking. The takeaway from the press release is that the Bureau continues to be very active under Director Kraninger's leadership. While the CFPB has reduced the number of investigations it is handling, it has not, as certain consumer advocates claim, abdicated its responsibility to enforce clear violations of the law that have harmed consumers.
In particular, we applaud Director Kraninger for the many CFPB financial education initiatives that are taking place under her leadership. It has been our long-standing view that the CFPB's initiatives to fulfill its Dodd-Frank mandates to improve the financial literacy of American consumers and protect older Americans from financial exploitation are deserving of industry support.
For some time, the mortgage industry, without success, has asked the U.S. Department of Housing and Urban Development to provide a clear answer to the question of whether Deferred Action for Childhood Arrival (DACA) recipients are eligible for FHA loans. HUD finally provided a clear answer in responding to an inquiry from Representative Pete Aguilar (D-CA): "DACA recipients remain ineligible for FHA loans."
HUD policy, currently reflected in HUD Handbook 4000.1, provides that "[n]on-U.S. citizens without lawful residency in the U.S. are not eligible for FHA-insured Mortgages." In its letter to Representative Aguilar, HUD addresses the legal status of DACA recipients by referencing statements made by the Department of Homeland Security Secretary when DACA was established:
"In establishing DACA on June 15, 2012, Janet Napolitano, then the Secretary of Homeland Security, made clear that DACA is merely an exercise of 'prosecutorial discretion' and 'confers no substantive right, immigration status or pathway to citizenship.' Secretary Napolitano further stated that '[o]nly Congress, acting through its legislative authority, can confer these rights.'"
We will have to see if HUD's reliance on the status of DACA recipients to advise that they are not eligible to receive FHA loans prompts Congress to address their immigration status.
RD Legal Funding has filed its opening brief in the Second Circuit, where the CFPB and New York Attorney General filed appeals from the district court's decision and RD Legal Funding filed a cross-appeal. The CFPB and the NYAG filed their opening briefs in March.
RD Legal Funding purchased at a discount, for immediate cash payments, benefits to which consumers were ultimately entitled under the NFL Concussion Litigation Settlement Agreement (the NFLSA) and the September 11th Victim Compensation Fund of 2001 (the VCF). The CFPB and NYAG sued RD Legal Funding in federal district court, asserting claims under the CFPA and state law. The CFPB appealed 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. The NYAG appealed 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.)
Despite dismissing the NYAG's federal and state claims, Judge Preska determined in her June 21 decision that the purchase agreements effected assignments of the benefits that, as to the NFLSA benefits, were void under the terms of the underlying settlement agreement and, as to the VCF benefits, were void under the federal Anti-Assignment Act. After determining that the assignments were void, Judge Preska concluded that, as a result, the transactions were necessarily disguised usurious loans. (For the reasons discussed in our prior blog post, we believe the court's conclusion is flawed.) RD Legal Funding filed a cross-appeal from the district court's conclusion that the transactions were disguised loans.
In its brief, RD Legal Funding argues that the district court correctly concluded that the CFPB's structure is unconstitutional and cannot be cured by severing the for-cause removal provision from the CFPA. It also argues that the district court correctly dismissed the NYAG's state law claims for lack of subject matter jurisdiction.
RD Legal Funding makes the following additional arguments:
- The Second Circuit does not need to reach the issue of the CFPB's constitutionality because RD Legal Funding is not a "covered person" under the CFPA. The transactions at issue are sales of assets rather than extensions of credit under the CFPA. Thus, RD Legal Funding is not a person that offers or provides a consumer a financial product or service.
- The transactions at issue cannot be recharacterized as loans under New York law for various reasons, including that payment to RD Legal Funding is contingent on the distribution of the purchased receivables, with RD Legal Funding holding the entire risk that the purchased receivables will not materialize and having no recourse against the sellers of the receivables in that event.
- The court's conclusion that the transactions were loans because the assignments were void is contrary to law because a transaction cannot be both an assignment and a loan.
- The complaint fails to state a claim for relief for reasons that include that many of the claims are based on the premise that the transactions are loans.
In May 2019, the Ninth Circuit ruled in Seila Law that the CFPB's single-director-removable-only-for-cause structure is constitutional. Last week, appellant Seila Law filed a motion to stay the Ninth Circuit's mandate pending its filing a petition for a writ of certiorari with the U.S. Supreme Court. On March 12, the Fifth Circuit heard oral argument in All American Check Cashing's interlocutory appeal from the district court's ruling upholding the CFPB's constitutionality.
The U.S. Department of Justice announced last Thursday that it had reached an agreement with First Merchants Bank, an Indiana state-chartered bank, to settle the redlining lawsuit that the DOJ filed against the bank on June 13, 2019 simultaneously with a settlement agreement and agreed order.
The agreement represents the second fair lending settlement entered into by the Republican-led DOJ under the Trump administration. (The first was entered into with KleinBank in May 2018.) More importantly, the settlement agreement recites that the bank was notified on June 5, 2017 that the DOJ had opened an investigation into whether the bank's lending practices were discriminatory, suggesting that this may actually be the first redlining case to be initiated and resolved by the DOJ during the Trump administration.
The DOJ's complaint, which relates to the bank's residential mortgage lending business, including its home improvement loan and home equity line of credit programs, alleged that First Merchants violated the Fair Housing Act and the Equal Credit Opportunity Act by engaging in a pattern or practice of unlawful redlining of majority-Black areas in Indianapolis-Marion County. From 2011 to 2017, the bank was alleged to have avoided providing mortgage credit to individuals in these areas.
The redlining claim was based, in part, upon the allegation that First Merchants established and maintained a discriminatory Community Reinvestment Act (CRA) assessment area that was "horseshoe-shaped," "excluding Indianapolis-Marion County and its 50 majority-Black census tracts from the Bank's [CRA] assessment area, while including overwhelmingly white counties." Even after an acquisition that resulted in the addition of Indianapolis-Marion County to its assessment area, the bank allegedly failed to open or operate a bank branch in any of the county's majority-Black census tracts. The DOJ also claimed that the bank failed to meaningfully advertise in such census tracts. According to the complaint, First Merchants' lending practices discouraged applicants in such census tracts from applying for loans, resulting in a disproportionately low number of applications and originations from such census tracts as compared to its peer institutions.
The DOJ also alleged that the bank's mortgage loan policy contained a lending preference for customers within its branch footprint, which was based in majority-White areas. It alleged that the adoption of this policy "was intentional and willful, and has led to a large statistically significant disparity in the number of residential mortgage loan applications and originations First Merchants Bank has received from majority-White areas and majority-Black areas within the [bank's assessment area] between 2011 and 2017." The complaint alleges that the bank's conduct constitutes discrimination on the basis of race in violation of the FHA and ECOA and a pattern or practice of "resistance to the full enjoyment of rights secured by the [FHA and ECOA]" and "unlawful discrimination and a denial of rights granted by the [FHA] to a group of persons that raises an issue of general public importance."
Under the settlement agreement, First Merchants agrees to take various actions, including:
Retaining an independent third party consultant to conduct an assessment of the bank's fair lending risk management program and providing a report to the DOJ regarding the bank's plans to adopt or implement the consultant's recommendations
Maintaining a fair lending monitoring program
Providing training to all employees with significant involvement in mortgage lending, marketing, or CRA compliance within the lending area, all senior management, and all board members to ensure that their activities are conducted in a non-discriminatory manner
Engaging an independent third-party consultant to conduct a community credit needs assessment
Designating a full-time Director of Community Development for the duration of the order (which is four years)
Having modified its CRA assessment area after the 2016 acquisition to include Indianapolis-Marion County, serving a lending area that includes the entire county
Opening one new full service branch in a majority-Black census tract in Indianapolis-Marion County
Opening one loan production office in Indianapolis-Marion County that is centrally located to multiple majority-Black census tracts and accessible to residents of those tracts through public transportation, advertising this location in a manner similar to which the bank advertises other branches, providing visible signage indicating the office's location, placing a full-service ATM at the office, and maintaining regular business hours at the office
Spending a minimum of $125,000 per year on advertising, outreach, consumer financial education, and credit repair counseling, for a total of $500,000 over the term of the order
Meeting certain minimum requirements set forth in the order for advertising and conducting outreach within majority-Black census tracts during the term of the order, including, but not limited to: advertising each year in at least one print medium directed to African American readers in Indianapolis-Marion County; providing two outreach programs annually for real estate brokers and agents, developers, and others engaged in residential real estate-related business in majority-Black census tracts; developing a consumer education program for loan applicants from majority-Black census tracts in Indianapolis-Marion County on consumer finance and/or credit repair; and providing at least four outreach seminars annually targeted at residents of majority-Black census tracts in Indianapolis-Marion County
Investing a minimum of $1.12 million in a special subsidy fund to be used to increase the amount of credit that the bank extends to residents in majority-Black census tracts in Indianapolis-Marion County for home mortgage loans, home improvement loans, and home refinances, with a qualified applicant eligible for a subsidy of up to $7,500
The First Merchants settlement, like the KleinBank settlement, does not require the bank's payment of a civil money penalty. This stands in contrast to previous redlining settlements under the Obama administration, such as those involving Hudson City Savings Bank and BankcorpSouth Bank.
Last week, the FDIC published its Consumer Compliance Supervisory Highlights that provides observations about its consumer compliance supervision activities in 2018. Importantly, the highlights include anonymized 2018 exam findings regarding violations of consumer protection laws and other information to help financial institutions stay abreast of issues and trends identified during exams and assist them in mitigating potential risks.
The FDIC's findings should be carefully reviewed not only by banks subject to FDIC supervision, but also by banks and other businesses supervised by other regulators who might raise similar issues.
The FDIC's anonymized exam findings include:
- Overdraft Programs. FDIC examiners observed potential UDAPs when institutions using an available balance method assessed more overdraft fees than were appropriate based on the consumer's actual spending or when institutions did not adequately describe how the available balance method works in connection with overdrafts.
The CFPB identified a similar overdraft issue within its Winter 2015 Supervisory Highlights, describing "deceptive practices relating to the disclosure of overdraft processing logic" where institutions had charged overdraft fees on electronic transactions "in a manner inconsistent with the overall net impression created by the disclosures."
Risk Mitigant: The FDIC recommends that financial institutions (1) should provide clear and conspicuous disclosures about potential overdraft fees in connection with use of the available balance method so that consumers can understand when overdraft fees will be assessed and make informed decisions to avoid the assessment of such fees; and (2) when using the available balance method, ensure that any transaction authorized against a positive available balance does not incur an overdraft fee, even if the transaction later settles against a negative available balance.
- Real Estate Settlement Procedures Act (RESPA) Section 8 Violations. The FDIC identified RESPA violations involving alleged payments of illegal kickbacks, disguised as above-market payments for lead generation, marketing services, and office space or desk rentals. The FDIC found that certain arrangements, structured as marketing and advertising agreements, were actually disguised payments for referrals of mortgage business where the amounts paid greatly exceeded the applicable fair market value.
The CFPB has similarly articulated concerns with such arrangements, including in its Bulletin 2015-05.
Risk Mitigant: The FDIC recommends a variety of ways to mitigate risk, including:1. Providing training to executives, senior management, as well as staff responsible for and involved in mortgage lending operations;
2. Performing due diligence when considering new third-party relationships or hiring any individuals employed at or under contract to the bank that generate leads or identify prospective mortgage borrowers; and
3. Reviewing applicable law, guidance, and statements from regulatory agencies and authorities on RESPA Section 8.
- Regulation E – Mistakes Made in the Consumer Liability/Error Resolution Process. The FDIC described several Regulation E violations, including: (1) misapplying the timing requirements to determine a consumer's liability regarding unauthorized transactions not involving an access device, such as electronic debits through the ACH system (banks were misinterpreting the 60-day time frame from the transmission of the periodic statement during which the consumer is not responsible for the authorized debits); (2) failing to promptly start investigations when notified of a potential error (banks had failed to investigate consumer error claims promptly upon receipt of oral notification, erroneously delaying investigation until receipt of a written confirmation of an alleged error); (3) discouraging the filing of error resolution requests (banks had implemented onerous requirements, such as requiring consumers to visit a branch or file a police report to submit the error resolution request, which had a "chilling effect" and may have unfairly discouraged consumers from asserting their rights under Regulation E; and (4) not providing notice upon completion of an investigation (banks had either not provided the written notice pursuant to the regulation or had not included all of the required information). (The CFPB has frequently noted similar findings of Regulation E violations.)
Risk Mitigant: The FDIC recommends that financial institutions should maintain tracking logs covering the various timing requirements to ensure compliance with Regulation E's requirements from the time an error is alleged to the time an investigation is completed, and train new staff and conduct periodic refresher training for existing staff to ensure that personnel understand Regulation E requirements.
- Skip-A-Payment Loan Programs. Skip-A-Payment, or deferment, programs provide consumers with the ability to skip a loan payment. While the FDIC's statement that such programs "may provide temporary financial relief to consumers" suggests it generally views such programs favorably, the FDIC nevertheless found instances where institutions (1) failed to adequately disclose that enrollment in a Skip-A-Payment program would lead to paying additional interest over the life of the loan and a larger final payment; (2) failed to disclose that the Skip-A-Payment offer did not affect real estate borrowers' escrow payment obligations, resulting in some consumers incurring escrow shortages or deficiencies; and (3) assessed late fees for the month in which the payment was skipped.
Risk Mitigant: The FDIC recommends that financial institutions offering such programs should (1) provide consumers with clear and adequate disclosures that explain how the program works and the program's potential impact on a consumer's loan; (2) clearly define customer eligibility criteria; (3) provide training to staff in advance of launching the program; and (4) set monitoring protocols to ensure compliance with bank policies.
Lines of Credit – Finance Charge Calculation and Disclosure. The FDIC identified instances in which institutions did not accurately calculate or properly disclose finance charges or APRs on periodic statements, resulting in understated finance charges and APRs for loans that exceeded the permitted tolerances under Regulation Z.
Risk Mitigant: Though the FDIC does not include specific recommendations, we recommend that companies include testing of finance charges and APRs on periodic statements and agreements within regular compliance and audit processes to ensure the accuracy of relevant calculations and that disclosures are properly provided to consumers and to detect any ongoing systemic programming changes that may result in calculation or disclosure errors.
Vermont Supplements Recent Legislation
Vermont enacted legislation pertaining to initial and renewal applications and setting licensing fees to supplement legislation enacted earlier this year.
Effective July 1, 2019, the following application fees apply in Vermont:
- Lender license: a $1,000 license fee and a $1,000 application/investigation fee for the initial license. For each additional license for the same applicant – a $500 license fee and a $500 application/investigation fee;
- Lender license (commercial only): a $500 license fee and a $500 application/investigation fee;
- Mortgage broker: a $500 license fee and a $500 application/investigation fee;
- Mortgage broker (individual sole proprietor with no other person authorized to act as a broker under the license): a $250 license fee and a $250 application/investigation fee;
- Mortgage loan originator: a $50 license fee and a $50 application/investigation fee;
- Loan solicitation: a $500 license fee and a $500 application/investigation fee;
- Loan servicer: a $1,000 license fee and a $1,000 application/investigation fee; and
- For any combination of lender license, mortgage broker license, loan solicitation license, or loan servicer license: a $1,500 license fee and a $1,500 application/investigation fee.
Renewal fees are as follows:
- Lender license: $1,200;
- Lender license (commercial only): $500;
- Mortgage broker: $500;
- Mortgage broker (individual sole proprietor with no other person authorized to act as a broker under the license and originating five or fewer loans within the last calendar year): $250;
- Mortgage loan originator: $100;
- Loan solicitation: $500;
- Loan servicer: $1,000; and
- For any combination of lender license, mortgage broker license, loan solicitation license, or loan servicer license: $1,700.
A copy of the legislation is available here.
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