Mortgage Banking Update
In this issue:
- Podcast: A Look at the California Consumer Privacy Act Proposed Regulations
- PLI 24th Annual Consumer Financial Services Institute, San Francisco and Live Webcast – 25% Discount Available
- FDIC RESPA Section 8 Settlement Acknowledges Legitimacy of Marketing Arrangements
- Podcast: The Battle Over the CFPB’s Constitutionality Moves to the U.S. Supreme Court: What It Means for You
- Second Circuit Adjourns Oral Argument in RD Legal
- House Financial Services Subcommittee on Oversight and Investigations Holds Hearing on Lending and Housing Discrimination Against Members of the LGBTQ+ Community
- Nevada Regulator and AG Seek Dismissal of Lawsuit Filed by Trade Groups Challenging Nevada Law Allowing Applicant to Rely on Spouse’s or Former Spouse’s Credit Report
- Nevada Regulator and AG File Opposition to Trade Groups’ Preliminary Injunction Motion in Lawsuit Challenging Nevada Law Allowing Applicant to Rely on Spouse’s or Former Spouse’s Credit Report
- Brian Johnson, CFPB Deputy Director, Speaks at Meet the Policymakers Forum
- CFPB Files Cross-Motion for Summary Judgment in Lawsuit Alleging Wrongful Delay in Section 1071 Implementation; Describes Rulemaking Plan
- FCC Seeks Comment on Petition Requesting Ruling on TCPA’s Application to Opt Out of Confirmation Text Messages
- Consumer Finance Monitor Expands Coverage
- Did You Know?
- Looking Ahead
In this podcast, we discuss the key aspects of the recently proposed regulations to implement the California Consumer Privacy Act (CCPA), identify issues clarified by the proposal or left unresolved, compliance challenges raised by CCPA requirements for financial incentives and consumer requests received by large businesses, next steps (including the likely timeline for final regulations and enforcement), and activity in other states to adopt similar privacy laws.
Click here to listen to the podcast.
The third location of the Practising Law Institute (PLI) 24th Annual Consumer Financial Services Institute will take place in PLI’s San Francisco Conference facility and via concurrent live webcast on December 9–10, 2019, in San Francisco (and by live webcast). PLI has extended a 25 percent discount to clients and friends of Ballard Spahr who register through the link below. I am co-chairing the event, as I have for the past 23 years. Chris Willis, Practice Leader of Ballard Spahr’s Consumer Financial Services Litigation Group, will participate as a panel member in two panel discussions in the afternoon session of the first day.
The morning session on the first day will feature a panel discussion titled “Federal Regulators Speak,” that will be divided into two segments and focus on federal regulatory, enforcement, and supervisory developments. I will co-moderate a discussion among Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), and Federal Deposit Insurance Corporation (FDIC) representatives.
One of the two afternoon panels in which Chris will participate as a panel member is titled “Fair Credit Reporting Act/Debt Collection Issues” and will include a discussion of the CFPB’s debt collection rulemaking, Fair Credit Reporting Act (FCRA) litigation trends, and state activity. The other panel, which I will moderate, is titled “The Rapidly Evolving Landscape for Fintech” and will examine the intersection between new technologies and products and existing regulatory frameworks, such as the use of artificial intelligence (AI) and blockchain (including virtual currency).
The Institute will also focus on a variety of other cutting-edge issues and developments, including:
- State regulatory and enforcement developments
- Privacy and data security issues
- Telephone Consumer Protection Act (TCPA) developments
- Class action and litigation developments
- Consumer advocates’/plaintiff lawyers’ perspectives on current regulatory and litigation issues.
In addition, attendees can receive up to one full hour of Ethics credit exploring ethical issues unique to the consumer space.
Click here for a complete description of PLI’s 24th Annual Consumer Financial Services Institute and to reserve your place today. A special discounted registration fee will only be available to persons who register using this link.
HomeStreet Bank recently agreed to the issuance of an order to settle an allegation by the FDIC that the bank’s discontinued Home Loan Center–based mortgage business line violated the Real Estate Settlement Procedures Act (RESPA) “by entering into co-marketing agreements using online platforms and desk rental agreements that resulted in the payment of fees to real estate brokers and home builders for their referrals of mortgage loan business.” The order reflects that all of the agreements were terminated. The bank, which does not admit or deny the allegation, agreed to pay a civil money penalty of $1.35 million.
In the press release announcing the settlement, the FDIC states that “[w]hile co-marketing arrangements and desk rental agreements are permissible where the fees paid bear a reasonable relationship to the fair market value of marketing or rental costs, such arrangements and agreements violate RESPA when the amounts paid exceed fair market value and the excess is for referrals of mortgage business.” This is significant, as a federal banking regulator is confirming that both co-marketing and desk rental arrangements are permissible if the fees paid bear a reasonable relationship to the fair market value of marketing or rental costs. In contrast, CFPB Compliance Bulletin 2015-05, which was issued during the tenure of former CFPB Director Cordray, raises doubts as to whether marketing services agreements (MSAs) or similar arrangements are permissible under RESPA. In particular, the CFPB states in the Bulletin that its “experience in this area gives rise to grave concerns about the use of MSAs in ways that evade the requirements of RESPA. In consequence, the Bureau reiterates that a more careful consideration of legal and compliance risk arising from MSAs would be in order for mortgage industry participants generally.” It would be helpful if the CFPB revisited this area and issued guidance more in line with the FDIC guidance.
The U.S. Supreme Court has agreed to hear the Seila Law case to decide if the CFPB’s structure violates the U.S. Constitution because the President cannot remove the Director at will. In this podcast, Professor Kent Barnett, University of Georgia School of Law, joins us for a discussion of the current appellate opinions on this issue, the key SCOTUS opinions on the President’s removal authority, the arguments for and against the CFPB’s constitutionality, and the potential remedies for a violation.
Click here to listen to the podcast.
In CFPB and People of the State of New York v. RD Legal, the CFPB and the New York Attorney General appealed to the U.S. Court of Appeals for the Second Circuit from the U.S District Court for the Southern District of New York’s decision holding the CFPB’s structure is unconstitutional and striking all of Title 10 of Dodd-Frank. The Second Circuit entered an order adjourning the oral argument that was set for November 21, 2019. The order states that oral argument will be rescheduled at a later date.
The CFPB, which announced after it filed the appeal that it will no longer defend its constitutionality in the appellate courts or the Supreme Court, asked the Second Circuit to adjourn the oral argument until the Supreme Court decides Seila Law. RD Legal opposed the motion, arguing that unless the Supreme Court finds that the Dodd-Frank for-cause removal provision is unconstitutional and cannot be severed, the Supreme Court’s decision will not resolve the issues in RD Legal, specifically whether RD Legal is a “covered person” under the Consumer Financial Protection Act.
On October 29, 2019, the House Financial Services Subcommittee on Oversight and Investigations held a hearing to explore the issue of lending and housing discrimination against members of the LGBTQ+ community. A recording of the hearing is available here.
Six witnesses offered testimony and responded to questions posed by subcommittee members:
- Harper Jean Tobin, Director of Policy, National Center for Transgender Equality
- Michael Adams, Chief Executive Officer, SAGE
- Dr. Kerith Conron, Research Director, Williams Institute on Sexual Orientation Law and Public Policy at UCLA School of Law
- Alphonso David, President, Human Rights Campaign
- Professor Hua Sun, Associate Professor of Finance, Iowa State University
- Francis Creighton, President and CEO, CDIA.
The witnesses presented testimony on the evidence of discrimination against LGBTQ+ individuals in seeking shelter, housing, or loans to purchase a home. Professor Sun discussed his recently published paper looking at trends in mortgage lending to same-sex borrowers, which found that same-sex borrowers were more likely to be denied a loan, and paid higher interest and fees on loans when they were approved. The data also showed that same-sex borrowers are equally likely to default and less likely to prepay a mortgage loan, providing evidence that same-sex borrowers are less risky for lenders overall as compared to opposite-sex borrowers.
Many of the witnesses discussed the U.S. Department of Housing and Urban Department’s (HUD’s) proposed modifications to the Equal Access Rule, and encouraged the passage of the Equality Act (H.R.5/S.788), which expands public accommodation protections to prohibit discrimination based on sexual orientation or gender identity. The Equal Access Rule was published by HUD in September 2016 and ensures equal access to individuals in accordance with their gender identity in shelters funded under programs administered by HUD’s Office of Community Planning and Development. On May 22, 2019, HUD published a notice of proposed rulemaking to modify that rule, which would allow shelter providers to consider an individual’s sex for the purposes of determining accommodation.
Witnesses also discussed current practices for the collection and reporting of gender data on consumers, and suggestions for improvements. Currently, the Home Mortgage Disclosure Act requires reporting of gender data, and Dr. Conron and Professor Sun opined that the American Community Survey conducted by the U.S. Census Bureau be expanded to collect gender data.
Subcommittee Chairman Al Green discussed his proposed solution to combat intentional discrimination against LGBTQ+ populations, the Fair Lending for All Act, H.R. 166. This bill would add sexual orientation and gender identity to the Equal Credit Opportunity Act as classes protected against discrimination with respect to credit transactions, and would establish criminal penalties for intentional violations of prohibited credit discrimination. The bill also proposes to establish an Office of Fair Lending Testing within the Bureau of Consumer Financial Protection to test for compliance with the Equal Credit Opportunity Act.
The Commissioner of the Financial Institutions Division of the Nevada Department of Business and Industry and the Nevada Attorney General have filed a motion to dismiss the lawsuit filed last month in Nevada federal court by three trade groups challenging an amendment to Nevada law that allows an applicant for credit with no credit history to request that the creditor deem the applicant’s credit history to be identical to that of the applicant’s spouse during the marriage. The amendment is contained in Senate Bill 311 which was signed into law by the Nevada Governor on July 1, 2019, and became effective on October 1.
The trade groups also filed a motion for a preliminary injunction. The court extended the time for the defendants to file a response until November 12, 2019, and the plaintiffs have until December 2, 2019, to reply.
The lawsuit includes an allegation that the Nevada law is preempted by the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). The trade groups claim that (1) because creditors are not permitted to access a credit report where there is no permissible purpose or consent from the nonapplicant, the requirement violates the FCRA, and (2) because creditors are not permitted to obtain information about a nonapplicant spouse or former spouse based solely on the applicant’s request, it violates the ECOA/Regulation B prohibition on requesting information on an applicant’s spouse or former spouse.
In the motion to dismiss, the Commissioner and AG argue that the plaintiffs’ claims do not satisfy Article III ripeness standards because there is no history of enforcement, and “plaintiffs never explain why this Court should strip the Division of time to evaluate [the amendment] to consider regulations that alleviate the Plaintiffs’ concerns.” The defendants also claim that because the Division rather than the AG has the specific statutory authority to initiate actions to enforce the amendment, the AG is immune from suit.
The Commissioner of the Financial Institutions Division (FID) of the Nevada Department of Business and Industry and the Nevada Attorney General have filed opposition to the preliminary injunction motion filed by three trade groups in their lawsuit challenging an amendment to Nevada law that allows an applicant for credit with no credit history to request that the creditor deem the applicant’s credit history to be identical to that of the applicant’s spouse during the marriage. The amendment is contained in Senate Bill 311 which was signed into law by the Nevada Governor on July 1, 2019, and became effective on October 1.
The lawsuit includes an allegation that the Nevada law is preempted by the Fair Credit Reporting Act and the Equal Credit Opportunity Act. The trade groups claim that (1) because creditors are not permitted to access a credit report where there is no permissible purpose or consent from the nonapplicant, the requirement violates the FCRA, and (2) because creditors are not permitted to obtain information about a nonapplicant spouse or former spouse based solely on the applicant’s request, it violates the ECOA/Regulation B prohibition on requesting information on an applicant’s spouse or former spouse.
The Commissioner and AG recently filed a motion to dismiss the trade groups’ lawsuit in which they argued that the plaintiffs’ claims do not satisfy Article III ripeness standards because there is no history of enforcement, and the FID should be allowed to consider regulations to address the plaintiffs’ concerns. In their opposition to the trade groups’ preliminary injunction motion, the Commissioner and AG use the same arguments to support their claim that the plaintiffs are not likely to succeed on the merits. They also argue that there is no threat of irreparable harm because the plaintiffs “offer no evidence that any consumer has made a request [pursuant to the amendment] of them,” “do not assert that they have been threatened with a lawsuit by any consumer under [the amendment],” and “offer no evidence that they are in imminent danger of an administrative enforcement action either.”
On November 7, 2019, the George Mason University Antonin Scalia Law School hosted an event with Brian Johnson, the CFPB’s Deputy Director, to discuss the agency, its rulemaking process, innovation programs, and goals for the near future.
Deputy Director Johnson began the discussion by acknowledging that the CFPB’s scope of authority is not well-defined given its relatively recent creation. However, he and Director Kathy Kraninger believe that the CFPB’s mission should be guided by an objective definition of consumer protection, which Deputy Director Johnson describes as having three components: (1) to arm consumers with information to make informed decisions; (2) to police conduct by market actors; and (3) to avoid undermining market activity by reducing government involvement in the designs, features, and products available on the market.
On rulemaking, Deputy Director Johnson emphasized the importance of utilizing a robust cost-benefit analysis to evaluate the economic impact of proposed regulations. Rather than acting as a stumbling block(as some have suggested), he believes that his this analysis promotes positive outcomes when implementing rules. Thus, his stated preference is to have more economists at the CFPB working in the supervisory and enforcement contexts to provide such analyses as part of the rulemaking process.
On the creation of the Office of Innovation, Deputy Director Johnson expressed optimism that the programs offered will provide regulatory clarity to participants, which will result in effective guidance and better outcomes for both innovators and consumers. He strongly encouraged state agencies and regulators to join the American Consumer Financial Innovation Network (ACFIN), especially those that are skeptical of the CFPB’s motives under its current leadership. He also indicated that he is hopeful that the coordination between the CFPB and state agencies contemplated by ACFIN would provide greater assurance to companies obtaining no-action letters from the CFPB that the letters will be recognized by state agencies so that programs that are the subject of no-action letters can operate without raising alarms with state attorneys general.
When asked about the status of existing enforcement actions opened under former Director Richard Cordray, Deputy Director Johnson stated that the CFPB is still reviewing such actions to determine whether they involve issues where there were gaps in or uncertainty exists to the relevant rules and regulatory guidance. His hope is that the CFPB will develop a body of agency common law that will ultimately provide clarity and consistency to consumers and the industry alike.
The CFPB has a cross-motion for summary judgment in the lawsuit filed by the California Reinvestment Coalition, the National Association for Latino Community Asset Builders, and two individual small business owners seeking a declaration that the CFPB’s failure to issue regulations implementing Section 1071 violates the Administrative Procedure Act and an order directing the CFPB to issue such regulations within six months. Earlier this month, the plaintiffs filed a motion for summary judgment, and the case was assigned to a mediator.
The Bureau filed an answer to the amended complaint in which it asserted two affirmative defenses: the plaintiffs lack standing to bring the action and their APA claim is barred by the applicable statute of limitations. The plaintiffs claim they are entitled to the relief they seek under the APA provision that allows a court to compel agency action that is “unreasonably delayed.” Relying on U.S. Court of Appeals for the Ninth Circuit precedent, the Bureau characterizes such an order as “a form of mandamus” that is justified only in “exceptional circumstances.”
The Bureau asserts such circumstances do not exist, and it is not unreasonable for it to have not yet issued a Section 1071 rule because:
- It “has made considerable progress in undertaking the information-gathering necessary to support an informed rulemaking.”
- In Dodd-Frank, Congress assigned it multiple mandatory rulemakings but did not include Section 1071 rulemaking among those for which it imposed statutory deadlines, thus providing a “strong signal that Congress did not expect the Bureau to begin work on the Section 1071 rulemaking right away.”
- It “has a plan to ensure that it can promptly issue a thoughtful and effective rule to implement Section 1071.”
In describing its rulemaking plan, the Bureau states that the plan “focuses on the next year of its rulemaking work.” The Bureau “intends to complete its internal policymaking process in the next six months” and within six months thereafter (estimated to be by next November), it “expects to release a detailed outline of the proposals under consideration” to be followed by a report issued by a SBREFA panel “within two months of being officially convened.” However, because “the Bureau cannot predict the nature and extent of the comments it will receive in connection with the SBREFA process, or that it will receive in response to a notice of proposed rulemaking…the Bureau’s plan does not yet include intended dates for the issuance of a proposed or final rule.” The Bureau notes, however, that “for completed rulemakings that went through the SBREFA process in recent years, the Bureau took roughly three to eleven months to issue a notice of proposed rulemaking after completion of the SBREFA process, and approximately eleven months to issue a final rule after the end of the proposal’s comment period.”
The Bureau further argues that the “exceptional circumstances” required for mandamus do not exist because: (1) the completion of rulemaking, while in the public interest, is not necessary to protect human health, and rushing to issue a poorly designed rule could harm the businesses Section 1071 was meant to help, and (2) expediting the Section 1071 rulemaking further could interfere with other important regulatory projects, such as addressing the temporary qualified mortgage provision.
The Bureau also makes the alternative argument that assuming the plaintiffs are entitled to any relief, such relief should not include a rulemaking deadline but should be limited to requiring the Bureau to issue periodic status reports on its rulemaking. According to the Bureau, imposing such a deadline is only appropriate where it is necessary to protect human health or to deal with an agency that has ignored prior judicial warnings or mandates.
In its cross-motion, the Bureau references the symposium on Section 1071 that it held on November 6, 2019, as one of the actions it has taken to commence Section 1071 rulemaking.
The FCC has issued a notice announcing that it is seeking comment on a petition filed by Capital One Services, LLC (Capital One) that asks the FCC to issue a declaratory ruling to confirm that the recipient of an opt-out request sent in response to a text message does not violate the Telephone Consumer Protection Act (TCPA) by sending a confirmation text message to clarify the scope of the request. Comments are due by December 9, 2019, and reply comments are due by December 24, 2019.
Capital One’s petition describes an “intelligent assistant” tool it has developed that enables customers to receive different categories of informational text messages, such as fraud alerts, payment reminders, and low balance or available credit notices. Customers can also use the tool to send text messages seeking information from Capital One, such as available balance or other details about the customer’s account. To enroll to receive or send text messages using the tool, a customer must affirmatively provide his or her mobile phone number and consent to receive information through the tool via text message. Because the tool transmits multiple categories of informational text messages, if a customer revokes his or consent in response to a particular text message (such as by replying “STOP”), it may not be clear whether the customer wants to opt out of all text messages sent using the tool or only the category of text message to which the consumer replied “STOP.”
In its 2012 declaratory ruling in Soundbite Communications, the FCC clarified that a sender of text messages can confirm a recipient’s revocation request without violating the TCPA by sending a one-time opt-out confirmation text message within a short period of receiving the request. The FCC concluded that a consumer’s prior express consent to receive text messages included receiving a one-time opt-out confirmation text message.
Soundbite, however, involved a text message program in which the sender only sent messages concerning one category of information. As a result, the scope of a consumer’s opt-out request would always be clear to the sender. In its petition, Capital One asks the FCC to confirm that a text message clarifying the scope of an opt-out request in a program where the consumer has consented to receive multiple categories of informational text messages is also permissible under Soundbite and does not violate the TCPA.
Many readers of our blog Consumer Finance Monitor have also been receiving emailed legal alerts from Ballard Spahr’s Consumer Financial Services Group about private litigation developments and decisions involving issues relevant to consumer finance. In an effort to keep our clients even better informed, we have expanded Consumer Finance Monitor’s coverage beginning this week to include those developments and decisions.
This expansion means we will no longer be sending emailed legal alerts on a regular basis. Reports on the day-to-day developments that collectively shape our industry will be available only on Consumer Finance Monitor. Invitations to our webinars will continue to be sent by email.
If you are not already a Consumer Finance Monitor subscriber, we hope you will consider subscribing. Subscribers receive emailed updates that contain links to each new blog post that we publish.
Our expanded blog will no longer tag blog posts under the general categories of “CFPB Monitor,” “Federal CFS Monitor,” and “State CFS Monitor.” Going forward, we will use the general categories of “Regulatory and Enforcement” and “Litigation and Decisions.” We will continue to tag blog posts under specific sub-categories to enable our readers to more easily identify blog posts dealing with topics of interest to them.
In addition to our blog and webinars, we have a weekly podcast program focused on legal developments that are of importance to the consumer finance industry. Our podcasts are available on Ballard Spahr’s website, as well as Apple iTunes, Google Play, and Spotify. A new podcast is released each Thursday.
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NMLS to Release System Enhancements for MLO Temporary Authority
The Nationwide Multistate Licensing System & Registry (NMLS) is scheduled to release a system enhancement on November 24, 2019, which will allow qualified mortgage loan originators (MLOs) who are changing employment from a depository institution to a state-licensed mortgage company, or qualified state-licensed MLOs seeking licensure in another state to continue originating loans under Temporary Authority. This enhancement supports the amendments to the SAFE Act created by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
Washington State Adopts Temporary Authority Provisions
Washington State has enacted legislation amending its regulations to permit temporary authority to operate as a mortgage loan originator pursuant to the SAFE Act.
Newport Beach, CA | December 2–3, 2019
Hot Topics in Labor Law and LO Comp
Speaker: Richard J. Andreano, Jr.
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