CFPB Monitor

News Guidance Perspectives of CFPB | Ballard Spahr Law Firm Blog

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.”


Bipartisan House bill introduced to create temporary safe harbor from enforcement of TILA-RESPA integrated disclosure rule

Posted in Mortgages

Republican Congressman Steve Pearce and Democratic Congressman Brad Sherman have introduced a bill in the House of Representatives (H.R. 2213) that would provide lenders with a temporary safe harbor from enforcement of the TILA-RESPA integrated disclosure (TRID) rule which is set to take effect on August 1, 2015.

The bill provides that the TRID rule cannot be enforced against any person before
January 1, 2016 and no suit can be filed against any person for a violation of the TRID rule occurring before that date if such person has made a good faith effort to comply with the TRID rule.

The bill is supported by the American Bankers Association.  The ABA was among a group of 17 trade associations and organizations that wrote to the CFPB in March 2015 seeking a grace period for enforcement of the TRID rule.

US Hispanic Chamber of Commerce and CFSA to hold May 13 summit on CFPB short-term lending rulemaking

Posted in Payday Lending

On May 13, 2015, the United States Hispanic Chamber of Commerce (USHCC) and the Community Financial Services Association of America (CFSA) will host a policy and research summit in Washington, D.C. on “Consumer Credit Under Assault: Does the Data Support the Rhetoric?”

At the summit, there will be a discussion of the CFPB’s recent contemplated proposals taking aim at payday and other short-term loans and their potential impact on small businesses and consumers.  In addition to Arizona Congressman David Schweikert and representatives of USHCC and CFSA, other  guest speakers include Professors Ronald Mann and Jennifer Priestley, the authors of two recent studies examining the effect of short-term lending on consumers’ financial health.

The event is open to media and requires an RSVP.

CFPB settles action against land developers for ILSA violations

Posted in CFPB Enforcement

The CFPB recently announced that it had entered into a consent order with a land-development company and several individuals involved in the company’s operations to settle charges that the respondents violated the Interstate Land Sales Full Disclosure Act (ILSA).  According to the findings of fact and conclusions of law in the consent order which were admitted by the respondents, the respondents made misrepresentations related to the roads in a Tennessee property development in which they were selling “lots” within the meaning of ILSA.  The consent order requires the respondents to make road repairs consistent with an engineering report to be prepared by a company designated in the consent order.

The consent order states that in property reports registered with HUD and a public offering statement, respondents represented that all roadways in the development had been completed and built to county standards for approved private status.  It further states that the respondents also represented in the property reports that the seller would maintain the roads until they were dedicated to and accepted by Van Buren County, Tennessee.  According to the consent order, the development company had not maintained the roads and the roads had not been accepted by the county.


CFPB Issues Study on Credit Reports; Next Steps are Unknown

Posted in Credit Reports, Fair Lending, Research

The CFPB recently released a report that documents the results of a research project undertaken by the CFPB’s Office of Research to better understand the demographic characteristics of consumers without traditional credit reports or credit scores.  The Report concludes that the current credit reporting system is precluding certain populations from accessing credit and taking advantage of other economic opportunities.  Although the CFPB does not use the term “disparate impact”, the fair lending implications of the Report should be carefully considered by both the providers and users of credit reports and credit scores.

The CFPB press release highlighted four of the findings from the Report:

  • 26 million consumers (11% of U.S. adults) are “credit invisible” (i.e., they do not have a credit file with any of the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion).
  • 19 million consumers (8% of U.S. adults) have “unscored” credit records (i.e., they have insufficient credit history to generate a credit score).
  • Consumers in low-income neighborhoods are more likely to be credit invisible or to have an unscored record.
  • Black and Hispanic consumers are more likely to have limited credit records.

Although the Report does not include any recommendations for the industry on how to address the Report’s findings, during a press call hosted by the CFPB prior to the release of the report, Kenneth Brevoort of the CFPB’s Office of Research noted that the CFPB will be working on the development of potential fixes to the problem either through regulatory actions or encouraging industry initiatives.  The CFPB should be cautious about taking any regulatory actions that undermine existing industry efforts to serve populations not currently being served by traditional credit reports or credit scores.

The Report notes that several industry participants have already developed scoring products that are aimed specifically at these populations.  As demonstrated in congressional testimony last year by Stuart Pratt, President and CEO of the Consumer Data Industry Association (CDIA), the trade association for the consumer reporting industry, “CDIA’s members are at the forefront of this movement and it is private investment which is expanding the data sets available for lenders to use as they reach new communities of consumers. These data ensure expanded fairness and access.”

If the CFPB is suggesting that there need to be additional sources of alternative credit reports and credit scores, these new products and services must be developed carefully to ensure the reliability of any predictions; otherwise, the potential harm could be felt across all relevant stakeholders, from businesses that make decisions with inaccurate information and consumers that are impacted by those decisions.

In prepared remarks, CFPB Director Richard Cordray acknowledged that, “Without credit reporting and credit scoring, it would be harder for financial service providers to assess and manage credit risk, and the supply of credit would be more expensive, more erratic, and more constrained.” The CFPB should be wary of any actions that could disrupt the U.S. credit reporting system, which the Report observes is currently serving 189 million American consumers.

Federal agencies issue final rule on standards for appraisal management companies

Posted in CFPB General, CFPB Rulemaking, Federal Agencies

The CFPB along with five other federal agencies have issued a final rule that establishes minimum state registration and substantive requirements for appraisal management companies (AMCs), as required by Section 1473 of the Dodd-Frank Act.  AMCs that are a subsidiary of an insured depository institution and are federally regulated (federally regulated AMCs) are subject to the substantive requirements of the rule, but are not subject to state registration or supervision requirements.  The final rule also requires states to report to the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examinations Council (FFIEC) information required by the ASC to administer the new national registry of the AMCs (AMC National Registry), which includes both state-registered AMCs and federally regulated AMCs. The other federal agencies issuing the rule are the federal banking agencies, the Federal Housing Finance Agency, and the National Credit Union Administration (NCUA).

As we previously reported, for purposes of the rule an AMC is an entity that provides appraisal management services in connection with consumer credit transactions secured by a consumer’s principal dwelling or securitizations of those transactions to creditors or to secondary mortgage participants.  In particular, an AMC is a company that meets the statutory panel size threshold, which means a company that oversees an appraiser panel of more than 15 state-certified or licensed appraisers in a single state, or 25 or more state-certified or licensed appraisers in two or more states.  An appraiser panel is defined as a network of licensed or certified appraisers approved by an AMC to perform appraisals as independent contractors (i.e., non-W2 employees) for the AMC.  For the purposes of calculating the number of appraisers on an AMC’s appraiser panel, the count is based on the number of appraisers listed on the AMC’s roster who are potentially available to perform appraisals rather than the number of appraisers actually engaged to perform appraisals.

The minimum registration and substantive requirements established by the final rule apply to states that have elected to establish an appraiser certifying and licensing agency with authority to register and supervise AMCs that meet the standards.  The rule does not preclude a state from establishing additional requirements for state-registered AMCs.

The final rule does not require that a state establish an AMC regulatory regime, but there is a significant negative consequence if a state elects not to adopt such a regime.  If a state has not adopted a regulatory structure after 36 months from the effective date of this final rule, any non-federally regulated AMC would be prohibited from providing appraisal management services for federally-related mortgage transactions (i.e., credit transactions involving a federally regulated depository institution) in the state.  Furthermore, the federal agencies and the ASC will not serve as a “back-up” regulator to register and supervise AMCs in non-participating states.  Consequently, the only AMCs that would be able to provide appraisal management services for federally-related transactions in such states would be non-federally regulated AMCs that are below the statutory panel size and federally regulated AMCs.  (For a state that does not meet the 36 month timeframe, there is a process for the ASC to delay the restriction on non-federally regulated AMCs for one year if the state has made substantial progress toward implementation of a compliant regulatory system.)

Even if the restriction on non-federally regulated AMCs is triggered in a state, the state may later lift the restriction by adopting a regulatory structure for AMCs at any point after the three year implementation period has passed.

Among the minimum requirements to be applied by states, the final rule requires participating states to ensure that AMCs: (1) register with or obtain a license from the state and be subject to regulatory supervision; (2) contract with or employ only state-certified or licensed appraisers for federally related transactions; (3) select appraisers who are independent of the transaction and who have the requisite education, expertise, and experience necessary to competently complete appraisal assignments for the particular market and property type; (4) require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP); and (5) establish policies and procedures to ensure compliance with the appraisal independence standards established under Truth in Lending Act.

An AMC that is a federally regulated AMC must comply with same minimum requirements as state-registered AMCs, but is not required to register with a state. A federally regulated AMC must also register with the AMC National Registry and report directly to the participating state or states in which it operates the information required by the ASC for the AMC National Registry.

Consistent with the proposed rule, the final rule does not require any additional federal registration fees to be paid in connection with registration on the AMC National Registry.  According to the preamble, the final rule governs how to calculate the number of appraisers on a panel only for the purposes of determining whether an entity is an AMC subject to the AMC minimum requirements, not for the purpose of determining the annual AMC National Registry fee. Pursuant to the Dodd-Frank Act, it is the ASC, and not the federal agencies, that is responsible for establishing any potential AMC National Registry fee.

In addition, the CFPB believes that the rule does not impose requirements on AMCs (other than federally regulated AMCs), but merely encourages states to adopt the minimum registration and substantive requirements for AMCs.  According to the CFPB in the preamble, “the final rule is not prescriptive as to how or when the states must exercise the authority or mechanisms.  Exercise of such authority and mechanisms is determined at the discretion of the states, subject to monitoring by the ASC for effectiveness in the judgment or discretion of the ASC.”  Thus, it appears that the CFPB’s position is that any fees that are charged to AMCs are attributable to states exercising their implementation authority and/or ASC oversight expectations rather than to the final rule itself.

Note that the AMC minimum standards do not affect the responsibilities of banks, federal savings associations, state savings associations, bank holding companies, and credit unions for compliance with applicable regulations and guidance concerning appraisals.  An institution that engages a third party, such as an AMC, to administer any part of the institution’s appraisal program remains responsible for compliance with applicable laws concerning appraisers and appraisals.

As of November 2014, 38 states have passed an AMC licensing and registration law.  Thus, with the issuance of the final rule, the federal agencies are stepping up the pressure on the remaining states to adopt a regulatory structure for AMCs.

The final rule will become effective 60 days after publication in the Federal Register.  Federally regulated AMCs must comply with the substantive requirements of the rule no later than 12 months from the effective date of the final rule.  Participating states will specify the compliance deadline for state-regulated AMCs.  Publication of the final rule is expected shortly.

CFPB Announces Final Diversity Standards under Dodd-Frank Section 342 Are Completed

Posted in Diversity and Inclusion

 On April 29, 2014, the Office of Minority and Women Inclusion (OMWI) of the Consumer Financial Protection Bureau (CFPB or Bureau) released its third Annual Report for 2014, as mandated by section 342(e) of the Dodd-Frank Act (Act).

In the Report, CFPB stated that six agencies under Dodd-Frank have completed the final diversity policy statement, which now is undergoing final approval by the agencies, signaling that release of the final standards may be imminent.  The balance of the Report addressed the measures CFPB has taken to further principles of diversity within the agency.

For more on the CFPB’s Report, see our legal alert.

Suit Challenging Constitutionality of CFPB Fails for Lack-of-Standing and Other Procedural Defects, D.C. Circuit Holds; Morgan Drexen files for Bankruptcy

Posted in CFPB General

Last week, in Morgan Drexen, Inc. v. Consumer Financial Protection Bureau, a divided panel of the D.C. Circuit Court of Appeals affirmed the dismissal of an action challenging the constitutionality of the CFPB.  The court did not reach the merits of the constitutional challenge, but rather held that the district court properly dismissed the case for lack-of-standing, and for failure to demonstrate that declaratory and injunctive relief were procedurally proper.

Morgan Drexen is a provider of paralegal and other support services to bankruptcy and debt relief lawyers. Following a more-than one-year investigation, the CFPB notified Morgan Drexen that it was considering an enforcement action against Morgan Drexen and its CEO for alleged violations of the Consumer Financial Protection Act, and the Telemarketing Sales Rule.

Before any enforcement action was filed, Morgan Drexen – as well as Kimberly Pisinski, an attorney who contracted for services from Morgan Drexen –filed a complaint against the CFPB in the district court for the District of Columbia, seeking declaratory and injunctive relief based on a multi-faceted challenge to the constitutionality of the CFPB.  Less than a month later, the CFPB filed an enforcement action in federal court in California against Morgan Drexen and its CEO, but not against Pisinski or any other attorneys who contracted with Morgan Drexen for services.

About eight weeks after the CFPB’s enforcement action was filed, the D.C. court dismissed Morgan Drexen’s and Pisinski’s lawsuit. The court held that Morgan Drexen had an adequate remedy at law in the CFPB’s enforcement action and would suffer no irreparable harm, and that Piskinski had not adequately alleged the requisite injury-in-fact for standing.

The D.C. Circuit affirmed the dismissal.  Addressing Pisinski’s claims first, the court initially observed that Pisinski was not the target of any actual or threatened enforcement action by the CFPB, and that standing to challenge government action is substantially more difficult to establish when the challenger is not the object of the government action.  The court then concluded that Pisinski had not cited sufficient evidence to support her various theories of standing, including that she was responsible for Morgan Drexen’s alleged illegal conduct, that her practice would be harmed by the CFPB’s enforcement action against Morgan Drexen, and that implicit accusations by the CFPB could damage Pisinski’s professional standing.

The court then turned to Morgan Drexen’s claims. The court initially acknowledged that a pre-enforcement suit for injunctive relief aimed at the constitutionality of a statute may be warranted so that a regulated entity is not forced to wait until it is subjected to an enforcement action to raise its constitutional arguments.  But the court explained that the CFPB had brought its enforcement action against Morgan Drexen less than thirty days after Morgan Drexen’s own suit, which at that point gave Morgan Drexen a vehicle to raise its constitutional challenges.  The court further reasoned that the dismissal of the D.C. district court suit relieved the court system of litigating overlapping issues in two federal forums.

As for Morgan Drexen’s claim for declaratory relief, the court held that the D.C. district court properly exercised its discretion not to grant such relief because an adjudication of Morgan Drexen’s constitutional challenges in the D.C. district court would not finally settle the controversy given the pendency of the enforcement action in California, and because the California action could resolve all issues raised in the D.C. district court case. The court further explained that the D.C. district court’s decision to decline to exercise jurisdiction avoided a potentially unnecessary decision on constitutional issues given that Morgan Drexen might have prevailed in the California case based on its non-constitutional defenses.

Judge Cavanaugh wrote a short dissenting opinion. In his view, the CFPB’s action against Morgan Drexen constituted regulation of a business in which Pisinski engaged given that she worked together with Morgan Drexen employees to provide the challenged services.  When a regulated party challenges the legality of the regulating agency’s actions, Judge Cavanaugh reasoned, there is ordinarily little question that the party has standing.

It remains to be seen whether Morgan Drexen and Pisinski will try to leverage Judge Cavanaugh’s dissent into a petition for rehearing en banc.  

Meanwhile, in the CFPB’s enforcement action in California, the district court rejected each of Morgan Drexen’s various constitutional arguments in a nineteen-page January 10, 2014 Order denying Morgan Drexen’s motion to dismiss. More recently, in an Order dated April 21, 2015, the district court entered a default judgment against Morgan Drexen based on alleged falsification of evidence in discovery, and deferred until completion of supplemental briefing whether such sanctions also should be imposed against Morgan Drexen’s CEO. Just last week, the court entered an Order imposing a temporary freeze on Morgan Drexen’s assets, and that same day, Morgan Drexen filed a petition under Chapter 7 of the Bankruptcy Code.

CFPB/Fed webinar on TILA-RESPA integrated disclosures rule scheduled for May 26

Posted in CFPB General, CFPB Rulemaking, Hot Issues, Mortgages, TILA / RESPA

On May 26, 2015, the CFPB and Federal Reserve will be co-hosting the fifth and final webinar in their series on the TILA-RESPA integrated disclosures (TRID) rule.  Presumably, the reference to this webinar being the “final” webinar is intended to mean that it is the final TRID webinar before the rule becomes effective on August 1, 2015.

The description of the fifth webinar indicates that it “will address specific questions related to rule interpretation and implementation challenges that have been raised to the CFPB by creditors, mortgage brokers, settlement agents, software developers, and other stakeholders.  In particular, the session will cover industry questions relating to operations and technology challenges, particularly new questions that have arisen as the industry is further into implementation.”

A link to register is available here.

Summaries of previous TRID related webinars are available at the links below: