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CFPB Holds a Field Hearing on Student Loan Servicing Issues

Posted in Student Loans

On May 14th, the same day that the CFPB launched a public inquiry into student loan servicing loan practices (the “Request for Information”), the CFPB held a public field hearing in Milwaukee, Wisconsin to address issues with the student loan servicing industry. After a brief introduction by Zixta Martinez, Assistant Director of Community Affairs for the CFPB, Under Secretary of the U.S. Department of Education, Ted Mitchell gave opening remarks, during which he emphasized the Department of Education’s goal of having a zero default rate among student loan borrowers. In an effort to achieve this goal, Under Secretary Mitchell noted that the Department of Education has worked (and will continue to work) closely with the student loan servicers to improve the quality and effectiveness of the servicing programs that are being offered, including establishing definitive performance standards.

Director Richard Cordray spoke next, and his remarks were published online before the field hearing and are available here. His remarks outlined the CFPB’s concerns with student loan borrowers’ experiences with servicers, which was based on the responses the CFPB received in connection with a public notice and hearing that took place two-years ago addressing the alleged “student debt domino effect.” Director Cordray then described the Request for Information that was issued by the CFPB related to student loan servicing practices and outlined a number of areas the CFPB may need to address depending on the responses received to the Request for Information:

  • Whether the student loan servicing industry is doing things that make repayment more complicated and more costly for consumers. For instance, whether payments are applied in ways that maximize fees or lengthen the amount of time for repayment.
  • Whether servicers are forwarding enough information to the new company when the rights to a loan are sold.
  • Whether there are economic incentives for inadequate service.
  • Whether the reforms that the CFPB has made to the mortgage servicing market, such as payment handling, loan transfers, error resolution, loan counseling, and treatment of distressed borrowers, may also benefit student loan borrowers.

Following these remarks, the CFPB moderated a panel discussion during which participants from industry, consumer advocacy groups, and representatives from financial aid offices and associations had the opportunity to provide remarks and answer questions. The CFPB panel included:

  • Richard Cordray, Director, CFPB
  • Steven Antonakes, Deputy Directory, CFPB
  • Rohit Chopra, Student Loan Ombudsman, CFPB.

The guest panelists were:

  • Jennifer Wang, Policy Director, Young Invincibles
  • Timothy Fitzgibbon, Senior Vice President, National Counsel of Higher Education Resources
  • Deanne Loonin, Attorney with the National Consumer Law Center (NCLC) and Director of NCLC’s Student Loan Borrower Assistance Project
  • Justin Draeger, President and CEO, National Association of Student Financial Aid Administrators
  • Richard D. (Dick) George, President and CEO, Great Lakes Higher Education Corporation
  • Chuck Knepfle, Director of Financial Aid, Clemson University
  • Ted Mitchell, Under Secretary, U.S. Department of Education.

The panelists first answered questions posed by the CFPB and Under Secretary Mitchell including: (i) What standards and protections that have been provided for consumers of other financial products can and should be used in the student loan servicing context?; (ii) What data exists that would indicate warning signs for troubled student loan borrowers?; and (iii) What is the quality of advice that is given by the servicers?

In answering these questions, the consumer advocate panelists urged the CFPB to (i) require objective counseling of the full range of rights that a student borrower may have since it was their experience that many student loan borrowers are not provided with sufficient counseling so that they understand all of the options that they may have; (ii) allow private enforcement actions against the servicers; and (iii) establish servicing standards for the student loan servicing industry. They also voiced their frustration with the few repayment options that are available for borrowers of private student loans.

Dick George, the sole panelist representing the industry, acknowledged the importance of the issues that were being discussed, but wanted the panelists to focus on the fact that most student loan borrowers are not in default. Rather, the vast majority of the student loan borrowers that have defaulted on their loans consist of students that dropped out of school early and never earned a degree. In his opinion, “the most important thing we can do in the servicing environment,” is to “find a way to communicate” early on with the most vulnerable of cohort student loan borrowers—the dropouts. Later, Dick George had a sensible suggestion that the Department of Education condition Title IV eligibility on having financial literacy courses at the college or university.

The representatives from financial aid offices and associations offered unique perspectives to the group. They encouraged the modernization of the rules that implement the Telephone Consumer Protection Act. Because most student loan borrowers exclusively use cellular phones, the servicers should be allowed to speak with the borrowers and offer them solutions by directly contacting them on their cellular phones, and not be forced to rely on a website and collection letters. In addition, they recommended the creation of a “policy and procedures manual” that highlights “how different servicers handle different loan interactions” so that the institutions could understand how servicers handle the various repayment options.

After the panel concluded, the CFPB entertained comments from approximately 15 members of the public who had registered in advance. The speakers were each afforded two minutes to comment. Student loan borrowers and consumer advocates made up the largest group of speakers. Two of the speakers were particularly noteworthy. The first, a veteran who had been deployed to Afghanistan, expressed frustration regarding the increase of the cost of higher education, and explained that he was essentially forced to join the military in order to attend school. He also urged that veterans not be required to payback their student loans during their deployment. The second speaker also cited the cost of higher education, and urged the group not to ignore the “elephant in the room”: that increased costs to attend post-secondary schools is the main reason for the so-called student loan debt crisis.

Shelby Draft Regulatory Relief Bill Addresses Various Residential Mortgage Issues

Posted in CFPB General, CFPB People, Mortgages, TILA / RESPA

On May 12, 2015 Senator Richard Shelby (R-AL) released a draft of a regulatory reform bill entitled the Financial Regulatory Improvement Act of 2015.  The draft bill addresses various residential mortgage lending issues, a number of which are summarized below.  The draft bill is scheduled for markup on May 21, 2015.

TRID Safe Harbor.  Section 117(b) of the draft bill would effectively allow lenders to continue to provide the existing Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures for residential mortgage loans even after the scheduled August 1, 2015 effective date of the TILA/RESPA Integrated Disclosure (TRID) rule.  Under the section an entity that provides the existing TILA and RESPA disclosures would not be subject to any civil, criminal, or administrative action or penalty for failure to fully comply with the Dodd-Frank provision under which the CFPB adopted the TRID rule.

The safe harbor would apply until 30 days after the date that the CFPB Director publishes a certification in the Federal Register that the TRID rule model disclosures (the Loan Estimate and Closing Disclosure) are accurate and in compliance with all state laws.  The concept of federal disclosures being “in compliance” with state laws is interesting given federal preemption.  Potentially the concept is intended to address a concern raised by the industry that many state laws in some fashion incorporate the existing disclosures under TILA and RESPA, and have not been updated to reflect the Loan Estimate and Closing Disclosure under the TRID rule.

The industry also has raised concerns about the requirement under the TRID rule to disclose the cost of the lender’s title insurance policy and the owner’s title insurance policy in a manner that differs from the actual pricing of the policies.  Potentially the requirement that the Director certify that the Loan Estimate and Closing Disclosure are “accurate” is intended to address the concern.

TRID Waiting Period.  A summary of the draft bill provides that section 117 would remove the three business day waiting period under the TRID rule in cases in which the only change from the prior disclosure is that the annual percentage rate (APR) is lowered.  Under the TRID rule, the Closing Disclosure must be received by the borrower at least three business days before consummation, and a revised Closing Disclosure with a new waiting period is required if the APR becomes inaccurate, a prepayment penalty is added or the loan program (or certain loan features) change.

The TRID rule uses the same standard in effect today for determining if the APR becomes inaccurate, which triggers the need to provide a revised Truth in Lending Disclosure with a new three business day waiting period.  One element of the standard is the regulatory APR overstatement tolerance.  Under that tolerance, if the finance charge is overstated and the APR is also overstated, but by no more than the equivalent finance charge overstatement, the APR is deemed to be accurate.  Because the availability of the APR overstatement tolerance depends on the relationship of the disclosed APR to the disclosed finance charge, many industry participants do not rely on the overstatement tolerance.  It is believed that many industry members will adopt the same approach to determining whether a new Closing Disclosure with a new waiting period must be provided under the TRID rule.  Apparently, the intent of the draft bill is to eliminate this uncertainty by making clear that if the only change is a decrease in the APR, no new waiting period is required under the TRID rule.

Unfortunately, the current version of section 117(a) in the draft bill would not achieve the apparent intent.  The draft bill would modify the separate disclosure requirement under TILA that applies to high-cost mortgage loans.  The waiting period under the TRID rule is not contained in TILA—it is set forth in Regulation Z.  Section 117(a) would need to be modified to achieve what appears to be the intent of the draft bill.  The change could be accomplished during the May 21, 2015 mark-up.

Ability to Repay Safe Harbor.  Section 106 of the draft bill would modify the ability to repay provisions under TILA by creating a safe harbor with respect to a loan if the creditor retained the loan in portfolio since origination or a person acquiring the loan has continued to hold the loan in portfolio since the acquisition, and certain conditions were satisfied.  The conditions are that (1) the loan was not acquired through a securitization, (2) any prepayment penalties comply with the phase out requirements for prepayment penalties that apply to qualified mortgages, (3) the loan does not have a negative amortization feature, interest-only features, or a term of more than 30 years, and the (4) the creditor documented the consumer’s income, employment, assets and credit history.

Loan Originator Licensing.  Section 118 of the draft bill would create a temporary license for a loan originator who (1) is a registered loan originator (i.e., a loan originator who works for a depository institution) and then becomes employed as a loan originator with a state-licensed mortgage lender, banker or servicer or (2) is a registered loan originator or loan originator licensed in one state and then becomes employed as a loan originator with a state-licensed mortgage lender, banker or servicer in another state.  The temporary license would be effective for 120 days.  The mortgage industry has long sought a transitional license to allow loan originators to continue to perform loan origination functions when they move from a depository institution to a state-licensed mortgage entity, or from one state (working as a loan originator for a state-licensed mortgage entity) to a state-licensed mortgage entity in another state.  Currently, loan originators who change employment from a depository institution to a state-licensed mortgage entity cannot perform loan originator functions until they become licensed.  Similarly, with the exception of six states that have implemented a transitional license structure, loan originators who move from one state to a state-licensed mortgage entity in another state cannot perform loan originator functions until they become licensed in that state.  This impedes freedom of movement by individual loan originators, and requires state-licensed entities to bear the costs of employing a loan originator during the period that the originator can perform no loan origination functions.  A number of state regulators in states that have not adopted a transitional license structure have taken steps to facilitate the movement of loan originators from one state-licensed entity to another, such as by the adoption of the Uniform State Test and use of the Approved-Inactive status for loan originators.  However, a more global solution is necessary to ensure uniformity among the states.

Points and Fees.  Section 107 of the draft bill would amend the definition of “points and fees” for purposes of qualified mortgage loans and high-cost mortgage loans to exclude amounts that are escrowed for the future payment of insurance and exclude premiums for accident insurance.  The exclusion of amounts escrowed for the future payment of insurance is viewed as a conforming change, as amounts escrowed for the future payment of taxes are already excluded from points and fees.

Unlike the Mortgage Choice Act of 2015 (H.R. 685), which the House passed in April 2015 (and prior versions were also passed by the House), the draft bill would not exclude from points and fees any fees or premiums for title examination, title insurance or similar purposes when received by an affiliate of the creditor.  Current law excludes such fees and premiums from points and fees if received by a party that is not an affiliate of the creditor, even if the fees and premiums are the same as or exceed the fees and premiums that would be charged by an affiliate of the creditor.  However, section 107 would require the Comptroller General of the United States, who is the head of the General Accountability Office (GAO), to conduct a study on various access to credit issues and also “on the ability of affiliated lenders to provide mortgage credit.”  The study may be a compromise approach to address the different treatment of title charges, and certain other real estate related charges, for points and fees purposes based on whether the charges are received by an affiliate or non-affiliate of the creditor.

Studies.   Among other provisions, the draft bill also would (1) require the GAO to conduct a study and provide a report to Congress regarding whether the data published under the Home Mortgage Disclosure Act (HMDA) creates various privacy and identity theft risks (section 111), and (2) require the federal banking agencies to conduct a joint study and provide a report to Congress regarding the appropriate capital requirements for mortgage servicing assets of banking institutions, including the effect of the Basel III capital requirements.  The HMDA data study likely is intended to address the expanded data reporting requirements under Dodd-Frank that are expected to be finalized later this year when the CFPB adopts the final version of a rule  proposed by the CFPB in July 2014 and published in the Federal Register in August 2014.  The industry has raised privacy concerns regarding the expanded data elements, and a backdrop to the concerns is a GAO finding that the CFPB needs to improve its privacy and data security procedures.

CFPB issues request for information regarding student loan servicing and re-launches its “Repay Student Debt” tool

Posted in Student Loans

Consistent with its continued focus on student lending, the CFPB issued a new request for information regarding student loan servicing. The request for information seeks input from the public regarding all aspects of student loan servicing, including industry practices that may create repayment challenges or hurdles for distressed borrowers, and the economic incentives that may affect the quality of service. Director Cordray stated that the purpose of these requests is to help the CFPB and other policy makers address “pain points in student loan servicing that make repayment a more difficult and stressful process.”

The requests are divided into several general inquiries: general industry practices relating to repayment, including practices for distressed borrowers; the application of consumer protections in other markets, such as mortgage and credit card servicing; and the availability of data about student loan servicing and student loan repayment. Each section contains a series of specific questions. The requests indicate that they are not confidential supervisory information requests and responses are voluntary. Comments and responses are due on or before July 13, 2015.

This is not the CFPB’s first public request for information about student loan servicing. The CFPB first issued a public request for information in November 2011 (which we previously wrote about here and here). More recently, the CFPB requested information about loan modification options from student loan lenders and servicers.

In addition to issuing its request for information, the CFPB also announced that it re-launched its “Repay Student Debt” tool. This tool offers interactive guidance to assist borrowers in understanding repayment options. According to the CFPB’s announcement, the revised website provides sample instructions for borrowers to send to their student loan servicers and information regarding how to request lower monthly payments in times of financial distress.

Regrettably, three recurring themes seem to be implicit in the request, in Director Cordray’s comments, and in the re-launch of the tool.  First, all student loan borrower complaints that reach the CFPB are inherently valid.   Second, student loan borrowers who are not making payments are automatically entitled to relief from servicers and loan holders.  And third, the problems in the economy that have made it difficult for some students to be fully employed should somehow be resolved by loan holders and servicers.

CFPB extends comment period on credit card issues

Posted in Credit Cards

In March 2015, the CFPB issued a request for information on 12 topics relating to the credit card market.  The request set a due date of
May 18, 2015 for comments.

In a notice published in yesterday’s Federal Register, the CFPB has extended the comment period for four of the topics until
June 17, 2015.  The four topics are online disclosures, grace periods, add-on products, and debt collection.  The CFPB states in the notice that it received multiple requests for an extension of the deadline and that an extension as to these four issues is appropriate because they “focus on particular areas of potential policy concern and may require additional time to respond.”

Does Director Cordray fully appreciate the implications of the TRID rule?

Posted in Mortgages

Statements made by CFPB Director Cordray to the National Association of Realtors on May 12, 2015 suggest that the Director may not fully appreciate the implications of the TILA/RESPA Integrated Disclosure (TRID) rule that is scheduled to become effective August 1, 2015.

The TRID rule requires that the combined consummation disclosure, which is called the “Closing Disclosure,” be received by the borrower at least three business days before consummation.  Certain changes in the loan require not only a revised Closing Disclosure but also a new three business day waiting period.  The changes that require a new waiting period are if the annual percentage rate (APR) becomes inaccurate, a prepayment penalty is added or the loan product (or certain loan features) change.

Apparently addressing industry concerns that the waiting period, and potential need for another waiting period if there are loan changes, may delay closings, the Director stated:

“The timing of the closing date is not going to change based on any problems you discover with the home on the final walk-through, even matters that may change some of the sales terms or require seller’s credits. On the contrary, we listened carefully to your concerns and limited the reasons for closing delays to only three narrow sets of circumstances: (1) any increases to the APR by more than 1/8 of a percent for fixed-rate loans or more than 1/4 of a percent for variable-rate loans; (2) the addition of a prepayment penalty; or (3) a change in the basic loan product, such as moving from a fixed-rate loan to a variable-rate loan. That is it. We recognize that various other things can and do change in the days leading up to the closing, so the rule makes allowances for those ordinary changes without delaying the closing date in ways that neither the buyer nor the seller may be able to accommodate very easily.”

The Director correctly notes that the CFPB did react to comments that the proposed TRID rule would have resulted in closing delays, because a new waiting period would have been required if the costs to close increased by more than $100.  The CFPB revised the proposal so that the final TRID rule requires a new waiting period based on only the APR becoming inaccurate, a prepayment penalty being added or the loan product (or certain loan features) being changed.  This was a common sense revision made by the CFPB.  However, the Director’s comment that problems discovered during a walk-through of a home will not trigger the need for a new waiting period is not consistent with industry views and experience.  Based on experience, industry members believe that issues discovered through a walk-through of a home before closing can result in changes to the sales transaction that result in changes to the loan terms, and that the loan term changes may cause the APR to become inaccurate.

Also, the Director did not address an important related issue.  The TRID rule limits the amount that lender fees and various other fees may increase, but allows the lender to increase fees based on changed circumstances and similar events.  The problem is that except in a very limited situation, only the upfront disclosure, called the “Loan Estimate,” may be used to increase fees subject to the TRID rule limits, and the rule does not permit a lender to issue a Loan Estimate after the lender has issued a Closing Disclosure.  So if a lender issues a Closing Disclosure for receipt by the borrower at least three business days before consummation, and the lender then learns of changes to the transaction, such as because of a walk through, that would increase loan fees, in many cases the lender will be in the unenviable position of having to bear the increased costs or deny the loan.

In both of the situations addressed above, matters involving the borrower and seller, and not the lender, will trigger the need for loan changes.  Revisions to the TRID rule that would provide greater flexibility that would enable a lender to make appropriate changes, and to do so without triggering a new waiting period, would be welcomed by the industry, and also benefit consumers.

Also, the Director’s statement that with regard to the APR, only increases by more than 1/8 of a percent for fixed-rate loans or more than 1/4 of a percent for variable-rate loans require a new waiting period, does not reflect the regulatory environment and industry reaction.  The TRID rule uses the same standard in effect today for the Truth in Lending Disclosure that a revised disclosure with a new three business day waiting period is required if the APR becomes inaccurate.  Whether the APR becomes inaccurate is determined based on tolerances addressed in Regulation Z section 1026.22.  That section incorporates the statutory APR tolerances of 1/8 of 1 percent for regular transactions and ¼ of 1 percent for irregular transactions.  Under the statutory tolerances the disclosed APR is deemed to be accurate if it is above or below the actual APR by no more than the applicable percentage.

Section 1026.22 also includes a regulatory APR overstatement tolerance.  Under that tolerance, if the finance charge is overstated and the APR is also overstated, but by no more than the equivalent finance charge overstatement, the APR is deemed to be accurate.  Because there often is confusion as to what is a regular versus an irregular transaction, and because the availability of the APR overstatement tolerance depends on the relationship of the disclosed APR to the disclosed finance charge, it is common in the industry to use only an APR tolerance of 1/8 of 1 percent above or below the actual APR to assess if a new Truth in Lending Disclosure with a new waiting period must be provided.  It is believed that many industry members will adopt the same approach to determining whether a new Closing Disclosure with a new waiting period must be provided under the TRID rule.

The Director’s comments in fact reflect the confusion and complexity with regard to whether a transaction is a regular or irregular transaction, which is the basis for many industry members using only the regular transaction tolerance.   The Director indicated that the 1/8 of 1 percent tolerance for regular transactions applies to fixed rate loans, and that the ¼ of 1 percent tolerance for irregular transactions applies to variable rate loans.  While often that will be the case, it many situations it will not.  One of the factors that classifies a transaction as an irregular transaction is if there are irregular payment amounts, other than an irregular first or final payment.  A fixed rate loan that has an interest only feature for a period of time or a graduated payment feature would have multiple payment levels and, thus, would be an irregular transaction.  A variable rate loan with an initial rate that equals the fully indexed rate would be disclosed as having a single payment level (ignoring the first and final payments) and, thus, would be a regular transaction.

Because of the uncertainty created by the complexity of the APR tolerances, many industry members will likely rely on the regular transaction tolerance of 1/8 of 1 percent to assess if a new Closing Disclosure with a new waiting period is required.  This likely will result in more delayed closings than would be the case if the TRID rule were revised to simplify when a new waiting period is required because of changes to the APR.

OCC updates consumer compliance examination manual to incorporate integrated disclosures

Posted in TILA / RESPA

The Office of the Comptroller of the Currency has released revised TILA and RESPA chapters of its examination manual for consumer compliance exams.  The revised chapters incorporate the detailed procedural and substantive requirements of the CFPB’s TILA/RESPA integrated disclosures (TRID) rule, which is set to go into effect on August 1, 2015.  The OCC’s publication of the chapters follows a similar release from the CFPB in April 2015.

The OCC’s versions of the TILA and RESPA chapters appear nearly the same as the CFPB’s, except for minor formatting adjustments and technical changes.  While this likely reflects the agencies’ coordination of examination procedures through the Federal Financial Institutions Examination Council, it offers little insight into how, and to what extent, exam priorities may differ for depository institutions, as compared to their non-bank counterparts in the mortgage space.

The other three federal banking agencies—the Federal Reserve, the FDIC, and the NCUA—have yet to update their examination manuals to include the TRID requirements.  For the time being, creditors under their supervisory jurisdiction should be able to rely on the versions published to date by the CFPB and the OCC.

CFPB issues compliance bulletin on unlawful discrimination based on receipt of mortgage assistance

Posted in Fair Credit, Mortgages

In a new compliance bulletin (Bulletin 2015-02), the CFPB “reminds” creditors of their obligation not to discriminate against applicants because their income includes vouchers from the Section 8 Housing Choice Voucher (HCV) Homeownership program.  The CFPB states in the bulletin that it “has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes.  Some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels.”

The Section 8 HCV Homeownership Program was created to assist low-income, first-time homebuyers in purchasing homes and is funded by HUD and administered by participating local Public Housing Authorities (PHA).  Through the program, a participating PHA can provide an eligible consumer with monthly housing assistance payments to help pay for homeownership expenses associated with a housing unit purchased in accordance with HUD’s regulations.

In the bulletin, the CFPB references the ECOA and Regulation B prohibition that bars a creditor from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.”  The CFPB notes that because “public assistance” as defined by Regulation B includes “mortgage supplement or assistance programs,” mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program for purposes of the ECOA and Regulation B.  It also notes the while Regulation B allows a creditor to consider, in a judgmental system of evaluating creditworthiness, whether an applicant’s income derives from any public assistance program to determine a pertinent element of creditworthiness, a creditor may not automatically discount or exclude protected income from consideration and can only discount or exclude such income based on the applicant’s actual circumstances.

The CFPB states that disparate treatment prohibited under the ECOA and Regulation B can exist when a creditor excludes or refuses to consider Section 8 HCV Homeownership Program vouchers as a source of income or accepts the vouchers only for certain mortgage loan products or delivery channels.  The CFPB also references the possibility that an underwriting policy can violate the ECOA and Regulation B based on its disparate impact even when a creditor has no intent to discriminate and the practice appears neutral on its face.

The CFPB comments that an institution can better manage fair lending risk in this area through “a clear articulation of underwriting policies regarding income derived from public assistance programs; training of underwriters, mortgage loan originators, and others involved in mortgage loan origination; and careful monitoring for compliance.”

CFPB files complaint against companies offering mortgage payment program

Posted in CFPB Enforcement, Mortgages

In a complaint filed yesterday in a California federal court, the CFPB alleges that two related companies offering a biweekly mortgage payment program and their individual owner engaged in deceptive telemarketing acts or practices that violated the Telemarketing Sales Rule and abusive and deceptive acts or practices that violated the Consumer Financial Protection Act.  The complaint seeks redress for harmed consumers, civil money penalties, and injunctive relief.

One of the defendants, Nationwide Biweekly Administration, Inc., is described in the complaint as offering a program called the “Interest Minimizer” under which most consumers who enroll divide their monthly payments in half and remit their payments to Nationwide every two weeks.  Nationwide holds the funds and promises to send the consumer’s monthly payment to the lender or servicer before the monthly due date.  The other defendant company, Loan Payment Administration LLC, is described in the complaint as offering Nationwide’s services to consumers.

The complaint alleges that (1) because most mortgages require 12 monthly payments but consumers making biweekly payments send Nationwide 26 payments each year, the program results in the equivalent of an extra monthly payment each year, (2) the program also results in three biweekly payments every six months, (3) consumers are charged a setup fee of up to $995 to enroll in the program and per payment processing fees totaling approximately $84 to $101 annually, and (4) defendants advertised the program online and through direct mail and a television infomercial.

According to the complaint, the defendants’ unlawful conduct included:

  • Falsely representing that consumers could achieve savings without paying more when, in fact, consumers enrolled in the program increased their monthly payment through payment of the initial setup fee and processing fees, plus the equivalent of one additional monthly payment each year.
  • Falsely representing immediate savings that in fact would take many years to achieve and when most consumers would leave the program before realizing any savings.
  • Misleading consumers about the cost of the program by stating in marketing materials that consumers’ extra payments are fully directed to loan principal when, in fact, the company keeps the first extra biweekly payment as the setup fee.
  • Falsely representing that consumers could not achieve similar savings without the defendants’ program.


House to hold May 14 hearing on TILA-RESPA integrated disclosures

Posted in Mortgages

On May 14, 2015, the House Financial Services Committee’s Subcommittee on Housing and Insurance will hold a hearing on “TILA-RESPA Integrated Disclosure: Examining the Costs and Benefits of Changes to the Real Estate Settlement Process.”

While the witnesses have not yet been announced, it is likely that the hearing will feature a renewed call from subcommittee members for the CFPB to provide a grace period from enforcement of the TILA-RESPA integrated disclosure (TRID) rule which is set to take effect on August 1, 2015.  In March 2015, Congressman Blaine Luetkemeyer, who chairs the subcommittee, wrote to Director Cordray to urge the CFPB to allow a “hold harmless” period “of restrained enforcement and liability” until January 1, 2016.  In addition, another subcommittee member, Congressman Steve Pearce, is a cosponsor of a bill recently introduced in the House (H.R. 2213) that would provide lenders with a temporary safe harbor from enforcement of the TRID rule until January 1, 2016.

It was recently revealed that Director Cordray sent a letter dated April 22, 2015 responding to Mr. Luetkemeyer’s March letter.  While Director Cordray did not rule out the possibility that the CFPB will initially take a lenient approach to enforcement, the letter makes no commitment to leniency.  In the letter, Director Cordray indicated that the CFPB considered the implications of various effective dates on industry implementation, including a January 1, 2016 effective date.  He stated that the CFPB “received extensive feedback that August was a comparatively better choice, given other operational imperatives for industry associated with the beginning of the calendar year and the traditionally slow pace of new applications in August.”  Director Cordray concluded the letter by commenting that the CFPB “plans to continue its active engagement in supporting industry and consumers throughout the implementation period of the [TRID] Rule.”