In July 2013, the CFPB announced its plans to launch a financial coaching project in 2014 for transitioning veterans and economically vulnerable consumers. Last week, the CFPB announced that it has contracted with the Armed Forces Services Corporation (AFSC), a Service-Disabled Veteran-Owned Business, to run the project and that ASFC is looking for 20 organizations in geographically diverse locations across the country to host financial coaches. The organizations are ones that are already providing other services, including job training, education, social, and housing services, to economically vulnerable consumers. Last month, the CFPB published a notice regarding its plans for evaluating the coaching project.
The CFPB has announced that it has updated its reverse mortgage guide to reflect recent product changes. The changes concern the amount of money a borrower can draw in the first year and the ability of a non-borrowing spouse to continue to live in the home after the spouse who signed the loan passes away.
The CFPB has announced that it has entered into a consent order with a Michigan title insurance agency to settle charges that the agency violated the Real Estate Settlement Procedures Act (RESPA) by paying fees to various companies under marketing services agreements (MSA) that were based on the referrals the agency received or expected to receive from such companies. The consent order provides that the agency does not admit or deny any of the CFPB’s findings of fact or conclusions of law except to admit the facts necessary to establish the CFPB’s jurisdiction.
The consent order finds that the agency entered into the MSAs with the understanding that the counterparties (who include real estate brokers according to the CFPB’s press release) would refer mortgage closings and title insurance business to the agency. The order also finds that the agency: (1) did not determine or document how it determined a fair market value for the services it allegedly received under the MSA, (2) set the fees to be paid under the MSAs in part by considering how many referrals it had received from the counterparties and the revenue generated by the referrals and “in some cases” by considering what competing title companies would pay the same counterparties for such services, (3) did not diligently monitor its counterparties to ensure it received the services for which it contracted, and (4) received significantly more referrals from counterparties when they had MSAs with the agency than when they did not. According to the consent order, the differences are “statistically significant and are not explained by seasonal or year-to-year fluctuations.”
The consent order requires the agency to pay a civil money penalty of $200,000. It also requires the agency to terminate any existing MSAs with companies in a position to refer real estate settlement service business to the agency and prohibits the agency from entering into new MSAs with any such companies. (An agreement under which the agency is to pay a person who does not provide settlement services to place advertisements to the public is not deemed an MSA unless such person endorses the agency as part of the advertisement.)
In addition, the consent order requires the agency to document “all exchanges of things of value worth more than $5.00″ with companies in a position to refer settlement service business to it, including a description of all things of value exchanged and the reasons for the exchange. Such documentation must be maintained for five years after the exchange. The requirement to document such things of value is a new element for a CFPB RESPA consent order, and may signal an approach that the CFPB will seek to take in future RESPA Section 8 enforcement matters.
This consent order is the latest in a series of CFPB consent orders dealing with RESPA’s referral fee prohibition.
The CFPB has issued a white paper on the manufactured housing market, including how manufactured housing is financed and the types of consumers who purchase or rent such housing. In the paper’s introduction, the CFPB explains that although manufactured housing only accounts for six percent of all occupied housing and a much smaller fraction of U.S. home loan originations, such housing is of interest to the CFPB because it is a source of affordable housing particularly for rural and low income consumers and may raise consumer protection concerns due to the nature of the retail and financing markets for such housing. The report relies on publicly available data, including HMDA data, proprietary data voluntarily provided to the CFPB and information obtained through outreach to industry groups, consumer groups, government agencies and “a variety of market participants and observers.”
The paper’s key findings include:
- Compared with residents of site-built homes, a greater proportion of households living in manufactured housing live in rural areas and are headed by a retiree. In addition, such households have median incomes and net worths that are, respectively, half and one-quarter of the income and net worth of other households.
- About three-fifths of manufactured housing residents who own their own home also own the land it is sited on, with the result that such consumers generally have the option to title their home as real property and obtain financing through a mortgage loan or to title the property as personal property and obtain chattel financing.
- An estimated 65 percent of borrowers who own their own land and obtained a loan to buy a manufactured home between 2001 and 2010 financed the purchase with a chattel loan, which often have lower origination costs and close more quickly than mortgage loans but may be priced between 50 to 500 basis points higher. In addition, mortgage loans generally have more consumer protections under RESPA and various state foreclosure and repossession laws. The CFPB notes that it is an “open question” whether consumers are aware of these tradeoffs.
- Manufactured home owners typically pay higher interest rates for their loans than site-built borrowers.
The report also discusses the potential impact of certain provisions of the CFPB’s new mortgage rules on manufactured housing. More specifically, the CFPB discusses how manufactured housing might be impacted by the changes in the HOEPA thresholds and the rules on qualified mortgages/ability to repay, loan originator compensation, appraisals for certain higher-priced mortgage loans, and escrow requirements for first lien higher-priced mortgage loans.
The CFPB notes that data on manufactured housing is scarce relative to the data available on site-built housing. To help close that gap, the CFPB is considering adding a field to the HMDA data that would indicate whether a manufactured housing loan is secured by real or personal property. And, perhaps signaling the nature of its future initiatives relating to manufactured housing, the CFPB states that its findings “underscore the importance of the manufactured housing sector as a source of affordable housing for some consumers, including those outside of metropolitan areas, older households, and lower-income households. At the same time, these same groups include consumers that may be considered financially vulnerable and, thus, may particularly stand to benefit from stronger consumer protections.”
As anticipated, the Department of Defense’s proposed regulations to implement provisions of the Military Loan Act added by the 2013 Defense Authorization Bill would significantly expand MLA coverage. The proposed revisions would limit interest charged to servicemembers and their dependents on all payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards and require creditors to screen all applicants against a DoD database before offering such products with rates greater than 36 percent. If adopted, the rule would increase significantly the regulatory and litigation risks that lenders face because the 2013 MLA amendments also included a new civil liability provision that allows private actions for MLA violations to be filed in federal court.
In its current form, the MLA rule covers only three types of consumer credit: closed-end payday loans with a term of 91 days or fewer in which the amount financed does not exceed $2,000; closed-end vehicle title loans with a term of 181 days or fewer, and closed-end tax refund anticipation loans. The MLA rule provides protections to a consumer who is a servicemember or the dependent of a servicemember at the time he or she becomes obligated on certain types of consumer credit transactions, such as limiting interest to 36 percent, prohibiting arbitration and prepayment penalties, and requiring delivery of special disclosures before consummation of the transaction (including oral disclosures, which in certain instances may be satisfied by providing a toll-free telephone number the consumer may call to receive the disclosures).
In developing the proposal, the DoD consulted with the CFPB as well as the FTC and federal banking regulators. Following the DoD’s release of the proposal, Director Cordray issued a statement praising the proposal in which he stated that it “would shut down the predatory lending to the military that has flourished through exploiting legal technicalities. By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming servicemembers in ways the law was intended to stop.” Assuming Director Cordray had in mind the CFPB’s ability under the proposal to stop lenders from using pre-dispute arbitration agreements on more MLA-covered loans, might he be signaling the direction of the CFPB’s arbitration study that is expected to be concluded in December?
For more on the DoD’s proposal, see our legal alert.
The CFPB has announced a new project as part of its Project Catalyst initiative, which the CFPB describes as ” designed to encourage consumer-friendly developments in markets for consumer financial products and services.” The new project is a research pilot to examine the effectiveness of early intervention credit counseling for consumers who are at risk of default on their credit card debt. Project Catalyst was launched in November 2012, at which time the CFPB discussed its plans to use the initiative to establish lines of communication with innovators who may be affected by the CFPB’s regulations, understand new and emerging products to be prepared to make necessary regulatory changes, and engage with innovators to better understand which existing laws work and do not work for innovators.
According to the CFPB, as part of the new project, two institutions, one described as a “global credit card issuer” and the other as a “consumer credit counseling service provider based in Philadelphia,” have agreed to share insights with the CFPB from a credit card credit counseling trial project that will offer early-intervention credit counseling to consumers at risk of defaulting on their credit card debt. The CFPB indicates that this research may also help inform whether similar strategies could be effective for consumers facing default on other products such as home, auto or other loans. The CFPB states that it plans to de-identify the information shared by the two institutions and take “appropriate precautions…to ensure that individual consumers cannot be identified through the data.” The CFPB’s research questions and goals are set forth in a summary that accompanied the CFPB’s announcment.
The CFPB has published a notice stating that as part of its Owning a Home project, it plans to seek approval from the Office of Management and Budget to conduct a field study of the project. The project consists of a various online tools and resources developed by the CFPB to help consumers make decisions about mortgages. Comments are due by November 25, 2014.
According to the CFPB, the purpose of the field study is to evaluate and improve its Owning a Home project. Among the issues as to which the CFPB seeks to gain insight through the study are whether and how the project impacts consumers and which consumer segments or profiles benefit most from the project. To conduct the field study, the CFPB plans to recruit prospective homebuyers and assign them to one of two study groups: those exposed to the project (treatment group) and those not exposed (control group). The CFPB then plans to survey both groups as they go through the mortgage shopping process, track the treatment group’s usage of Owning a Home tools and resources, and compare the two groups’ attitudes, behaviors and outcomes.
In May 2013, we reported that the CFPB’s amicus program scored a victory when the U.S. Court of Appeals for the Second Circuit ruled that the sale of a single-floor condominium unit in a multistory building was subject to the disclosure and reporting requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA). At the court’s invitation, the CFPB had filed a letter brief supporting the consumer/appellee’s position that the ILSFDA covered such sales.
Now, it is condominium unit developers who have scored a victory with the Senate’s unanimous approval of H.R. 2600 on September 18, 2014, following the bill’s similar unanimous passage in the House last year. While not exempting condominium unit sales from the ILSFDA’s antifraud requirements, the bill exempts condominium unit developers from the requirement to register their projects under the ILSFDA and provide federal property reports to purchasers. Barring a veto by President Obama, the new exemption will take effect approximately six months from now.
For more on the bill, see our legal alert.
Sixteen industry trade groups, including the American Bankers Association, the Mortgage Bankers Association, and Financial Services Roundtable, have sent a letter to Director Cordray in which they requested that the CFPB provide additional guidance to help the mortgage industry implement the new TILA-RESPA Integrated Disclosures Rule that will become effective on August 1, 2015.
In the letter, the trade groups asked the CFPB to provide clear written authoritative guidance in addition to offering oral guidance through webinars and other venues. The trade groups expressed their belief that due to the complexity of the rule, the CFPB should memorialize its guidance on issues to ensure a timely and effective implementation.
In the letter, the trade groups said, “Uniform written guidance developed with stakeholders’ input that can be relied upon will further fair competition and minimize the possibility of undue liability increasing costs. Most importantly, it will ensure that consumers will not be harmed by unnecessary confusion.”
In order to successfully put the new law into effect, the trade groups also recommend that the CFPB:
- Continue to actively participate in conferences and forums
- Provide additional exemplar forms
- Maintain contact with industry vendors
- Resolve conflicting regulations
We have extensively covered the CFPB and Federal Reserve Board’s June and August webinars that have addressed questions about the final TILA-RESPA Integrated Disclosures Rule. The recommendations of the trade groups echo concerns we have heard from industry members, and we consider the concerns to be valid.
While industry continues to voice its opposition to the CFPB’s proposal to publicly disclose consumer complaint narratives, some news groups think the CFPB’s proposal doesn’t go far enough. The Reporters Committee and eight news organizations have submitted a comment letter asking the CFPB to remove from its proposal the requirement for a consumer to consent to disclosure of his or her narrative. They assert in the letter that the complaints are already subject to disclosure as public records under the Freedom of Information Act, regardless of whether the sender opts to post them online.