D.C. Circuit Agrees to Hear Controversial PHH Case En Banc

On Feb. 16, 2017, the D.C. Circuit granted the CFPB’s petition to rehear en banc the court’s landmark October 2016 decision finding that the structure of the CFPB was unconstitutional. We covered the panel decision here. In its Feb. 16, 2017, order the D.C. Circuit directed the parties to brief three specific issues:

(1)        Is the CFPB’s structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute?

(2)        May the court appropriately avoid deciding that constitutional question, given the panel’s ruling on the statutory issues in this case?

(3)        If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case? Continue Reading

CFPB Fines Lender and Real Estate Brokers for Improper Kickback Scheme

On Jan. 31, 2017, the Consumer Financial Protection Bureau (CFPB) filed consent orders against one of the largest independent residential mortgage lenders, two real estate brokers and a mortgage servicer for their roles in an improper “kickback” scheme involving mortgage referrals. The fines here were notable given that the CFPB targeted realtors for accepting payments from the referral arrangements.

Prospect Mortgage, a mortgage lender based in Sherman Oaks, California, was assessed a $3.5 million civil penalty for paying illegal kickbacks. ReMax Gold Coast, based in California, and Keller Williams Mid-Willamette, headquartered in Oregon, are two of the real estate brokers with which Prospect Mortgage had improper marketing service arrangements. The CFPB also took action against a Connecticut-based mortgage servicer for accepting fees from Prospect Mortgage for referring consumers seeking to refinance. Continue Reading

OCC Announces Creation of New Office to Foster the Development of Fintech in Banks

Fintech is at the forefront of the financial industry. A recent announcement by the Office of the Comptroller of the Currency (OCC) shows that this trend will only continue to grow and cements fintech as an important piece to the financial services puzzle in the future.

On Oct. 26, the OCC announced it is creating a new stand-alone office to help banks and other entities develop fintech products. The office will be called the Office of Innovation and is slated to open in the first quarter of 2017 with locations in New York, Washington, D.C., and San Francisco. Continue Reading

CFPB Warns Mortgage Lenders and Brokers of Possible HMDA Violations

On Oct. 27, 2016, the Consumer Financial Protection Bureau (CFPB) warned 44 unnamed mortgage lenders and brokers that they may be in violation of data reporting requirements of the Home Mortgage Disclosure Act (HMDA).

Enacted in 1975, HMDA requires financial institutions to collect data about housing-related lending activity – including home purchase loans, home improvement loans and home refinancing loans that they originate or purchase or for which they receive applications – and report the information to the appropriate federal agency. The data is then used by regulators, including the CFPB, and the public to monitor lending practices nationwide and identify patterns of discriminatory lending behavior. Additionally, the data is used to ensure financial institutions are serving the housing needs of their communities and attracting private investment to areas of need. Continue Reading

Federal Appellate Court Deems CFPB ‘Unconstitutionally Structured’ and Overturns PHH Penalty

gavelOn Oct. 11, the U.S. Court of Appeals for the D.C. Circuit deemed the Consumer Financial Protection Bureau (CFPB) “unconstitutionally structured” and overturned its enforcement action, including a $109 million penalty, against PHH Corp., a New Jersey-based mortgage lender. Despite its rulings, the D.C. Circuit made clear that the CFPB will continue to operate and perform its duties.

The CFPB originally fined PHH for an alleged kickback scheme whereby PHH referred customers to insurers who then purchased reinsurance from a PHH subsidiary. In seeking to vacate the enforcement order, PHH made both constitutional and statutory arguments.

Constitutional Arguments

PHH argued that the CFPB’s status as an independent agency headed by a single director violates Article II of the U.S. Constitution. To analyze this issue, the D.C. Circuit employed a “history-focused approach” focusing on separation of powers decisions from the Supreme Court.

The D.C. Circuit observed that “[t]he CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decisionmaking and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency.” The D.C. Circuit added that the CFPB’s structure lacks critical checks and constitutional protections, despite the agency wielding vast power over the U.S. economy. Continue Reading

CFPB Finalizes New Rules Governing Prepaid Card Products

On Oct. 5, 2016, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced a final rule governing the burgeoning consumer prepaid card industry. The CFPB estimates that the amount of money consumers load onto “general purpose reloadable” prepaid cards increased from less than $1 billion in 2003 to nearly $65 billion in 2012. The scope of the new rule reaches not only traditional prepaid cards, but also mobile wallets, person-to-person payment products and other electronic accounts that store funds (e.g., PayPal). The rules will go into effect Oct. 1, 2017, creating uniform standards across the industry.

In general, the new prepaid card rules impose three requirements: First, they limit consumer losses when funds are stolen or cards are lost; second, they require institutions to investigate and resolve errors; and third, they must give consumers “easy and free access” to their account information. The CFPB also finalized “Know Before You Owe” disclosures for prepaid accounts, with short-form declarations available on the packaging of prepaid products and longer declarations available online. Continue Reading

CFPB Fines TMX Finance LLC $9 Million for Unfair and Abusive Practices

On September 26, 2016, the Consumer Financial Protection Bureau (CFPB) entered into a consent order with one of the country’s largest auto title lenders, TMX Finance LLC, the parent company of TitleMax. The CFPB took action against TMX Finance for engaging in unfair, deceptive, and abusive lending acts and practices, and for engaging in unfair and illegal debt collection tactics, in violation of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531 & 5536(a)(1)(B).

TMX Finance, based in Georgia, offers title and personal loans to consumers in 18 states through state subsidiaries including TitleMax, TitleBucks and InstaLoan. These companies offered consumers single-payment auto title loans of $100 up to $10,000, usually 30 days in length, on lien-free vehicles with their title as collateral. These loans carried high interest rates, as high as 300 percent APR. Continue Reading

California District Court Delivers Payday Lending Usury Victory to the CFPB with Important Consequences for On-Line Lenders

 

On August 31, Judge Walter of the Central District of California entered summary judgment in favor of the Consumer Finance Protection Bureau (“CFPB”) on its claims against CashCall, Inc. arising out of allegedly unfair and deceptive loan practices. The CFPB had sued payday lender CashCall and various affiliates for violations of the Consumer Financial Protection Act of 2010 (“CFPA”), based on CashCall’s alleged scheme to avoid state usury laws through the use of an online lender formed under a tribal jurisdiction. The decision has implications for the emerging online lending industry, which often relies on one jurisdiction’s usury laws to establish loan terms.

CashCall was found to have originated loans via an organization, Western Sky Financial, that it caused to be created under the laws of the Cheyenne River Sioux Tribe (“CRST”), which does not have usury laws. Western Sky marketed payday and other consumer loans to consumers under contracts containing choice-of-law provisions stating that CRST law governed. Western Sky ultimately provided loans to consumers in 16 states, but after originating the loans, it sold them all to CashCall within about three days of origination and paid CashCall an additional 2.02 percent of the face value of each loan. CashCall did not reject any of the loans Western Sky presented to it for purchase. After the sale, CashCall maintained all rights to the loans and serviced them, although it represented to consumers that it was merely servicing on Western Sky’s behalf. The CFPB alleged that using Western Sky to originate the loans under CRST law allowed CashCall to create loans with interest rates of up to 318.52%, well in excess of the usury caps in the 16 states. Continue Reading

Florida to Streamline Testing Requirements for Mortgage Loan Originator Licensure

On August 16, Florida announced via the National Mortgage Licensing System (NMLS) Resource Center that it was adopting the Uniform State Test (UST) for mortgage loan originators. With this announcement, the Florida Office of Financial Regulation became the 53rd state agency to no longer require a second state-specific test component for mortgage originators seeking licensure.

Although not mentioned in the announcement, BakerHostetler’s Financial Services Team has confirmed that, beginning in January 2017, Florida will require two hours of Florida-specific pre-licensing education covering Florida statutes, rules and regulations. Florida will then also require mortgage originators to complete one hour of Florida-specific continuing education annually.

While the Florida education requirements are not intended to increase the number of education hours required, many mortgage originators licensed in multiple states will find that to be the exact effect. These requirements will not impact those originators currently licensed and renewing their license for 2017. However, prior to renewing for 2018, originators must meet the new continuing education requirements. Continue Reading

CFPB Releases Proposed Amendments to Truth In Lending Disclosure Rules

Today, the CFPB released its proposed amendments to disclosure requirements under RESPA and TILA. These disclosure requirements are also known as the “Know Before You Owe” rule (the Rule). The amendments propose several notable changes:

  1. The CFPB proposes to change the way loan tolerances are calculated. Tolerance calculations will now include finance charges “and disclosures affected by the finance charge.” This amendment would effectively bring loan tolerance calculations back to what they were before the Rule originally took effect.
  2. For loans originated by housing finance agencies, recording fees and transfer taxes would now be chargeable to the borrower. Prior to the proposed amendment, there existed some confusion over whether charging recording fees and transfer taxes would cause the housing finance agencies to lose their partial exemptions. The CFPB hopes that the amendment will grant the partial exemption to more finance agencies, which in turn “should encourage lenders to partner with” such agencies.
  3. The Rule will now expressly apply to housing cooperatives. The CFPB’s goal is to “simplify compliance” given that prior to the amendment cooperatives were inconsistently treated by the states as personal or real property, which meant the necessity of complying with the Rule varied by state.

The proposed amendments also invite commentary as to how creditors can provide sellers and real estate brokers with mortgage disclosures without violating the consumer/buyer’s financial privacy.

The full proposed amendment may be found here. The CFPB’s press release summarizing the amendments may be found here.

The CFPB has asked that comments on the proposed amendments be provided by Oct. 18, 2016.

LexBlog