Wednesday, November 30, 2016

Payday lenders move to throttle 'Operation Choke Point'

Two payday lenders have filed an emergency request for preliminary injunctive relief with a federal district court to stop "Operation Choke Point," the program created by the Department of Justice to "choke out" companies that were seen as posing a high risk of payment fraud, money laundering, or other abuses by denying them access to the banking and payments system. The lenders, the Community Financial Services Association of America (CFSA) and Advance America, are co-plaintiffs in a case, CFSA et al. v. Federal Deposit Insurance Corp. et al., that is pending discovery before the U.S. District Court for the District of Columbia.
CFSA’s press release states that the emergency filing results from a "stepped up government campaign of strong-arm tactics against banks forcing them to end business relationships with payday lenders." CFSA’s memorandum in support of its motion and proposed order says the effects of Operation Choke Point "are now reaching crisis stage as banks have continued terminating their relationships with payday lenders."
"The need for immediate relief is more urgent than ever," said CFSA CEO Dennis Shaul. "Our largest member very recently had its final national banking relationship terminated. This effectively cuts off our member’s access to basic banking services for more than 1,200 of its stores and affects even its ability to pay employees and vendors."
Court ruling. On Sept. 15, 2015, the D.C. District Court ruled that it has jurisdiction to entertain the suit brought by the lenders. The court dismissed the counts of the complaint pertaining to alleged violations of the federal Administrative Procedure Act but refused to dismiss the counts pertaining solely to the regulators’ alleged violations of the payday lenders’ procedural due process rights under the Fifth Amendment to the U.S. Constitution. Since the initial ruling, the parties in the case have been awaiting further ruling from the Court before discovery proceedings may ensue.
OIG report. According to CFSA, a September 2015 audit by the FDIC’s Office of Inspector General confirms that "FDIC officials had used their regulatory leverage to coerce banks to close the accounts of law-abiding companies—specifically short-term lenders." The OIG reported that, although there was no evidence that the FDIC used the high risk list to target financial institutions, the agency "created the perception" that it discouraged institutions from conducting business with certain merchants, particularly payday lenders.
For more information about the DOJ's Operation Choke Point, subscribe to the Banking and Finance Law Daily.

Tuesday, November 29, 2016

Absence of concrete injury helps doom TILA class action

By Richard Roth

Two of the four Truth in Lending Act disclosure claims raised in a class action failed because the consumer who filed the suit would not have suffered any concrete injury from a TILA violation, the U.S. Court of Appeals for the Second Circuit has decided. The consumer’s other two claims failed to describe a TILA violation, the court said in affirming a pretrial judgment in favor of a credit-card issuing bank (Strubel v. Comenity Bank, Nov. 23, 2016, Raggi, R.).

The consumer was complaining about disclosures provided to her by Comenity Bank when she opened a Victoria’s Secret-branded credit card. According to the consumer, the bank violated 15 U.S.C. §1637(a)(7) because its disclosures were not substantially similar to those specified by Model Form G-3(A). Specifically, she asserted the bank did not clearly disclose that:

  • cardholders who wanted to stop payment under an automatic plan needed to satisfy certain obligations;
  • the bank was obligated, as part of the error resolution process, to advise the consumer of any corrections made during the 30-day acknowledgment term;
  • some consumer rights applied only to disputed purchases for which full payment had not been made and did not apply to cash advances or checks that drew against the credit card account; and
  • consumers who were not satisfied with a purchase paid for using the card had to contact the bank either in writing or electronically. 

Injury and standing. The bank raised the issue of the consumer’s constitutional standing to sue for the first time as part of defending against her appeal. Since constitutional standing is an aspect of a federal court’s subject matter jurisdiction, the appellate court was required to consider it. The consumer did not have constitutional standing to raise two of her claims, the court decided.

Article III of the Constitution gives federal courts jurisdiction over cases and controversies, and showing a case or controversy requires a person to demonstrate an injury in fact that arises from the challenged conduct. An essential part of a consumer’s injury in fact is a concrete or particularized injury, the court said. The need for an injury that is both concrete and particularized was emphasized in the Supreme Court’s recent Spokeo, Inc. v. Robins decision.

No concrete injury. The consumer could not demonstrate even a risk of a concrete injury arising from two of the violations she claimed, the court said. That meant the court had no jurisdiction over them.

The consumer had not enrolled in any automatic payment plan—in fact, Comenity had not offered such a plan while she held the credit card, the court pointed out. That being the case, an inadequate disclosure about such a plan could not have given rise to any risk arising from the consumer’s uninformed use of credit, the harm that TILA was intended to address.

Any failure by the bank to disclose clearly its obligation to describe corrections made shortly after a claim of error was made would have been a “bare procedural violation” that did not show the material risk of harm to the consumer that could be a concrete injury, the court continued. The consumer had never made any error claims, so her ability to deal with an error could not have been affected. If there were an error, it would not have affected the consumer’s use of credit.

Injury could exist. On the other hand, the other two claimed violations would have posed a risk of concrete injury, according to the court. Inadequate disclosures that some rights applied only to disputed purchases for which full payment had not been made and that a consumer who was dissatisfied with a purchase paid for using the card had to contact the bank either in writing or electronically related to the consumer’s ability to make informed decisions on how to use credit.

A consumer who was not notified of these obligations might be less likely to satisfy them, the court explained. That could cause the consumer to lose rights that TILA was intended to protect.

No violation described. After rejecting the bank’s argument that consumers have no right to statutory damages for violations of Reg. Z—Truth in Lending (12 CFR Part 1026)—as opposed to violations of TILA—the court decided that the claims which survived the standing challenge failed to describe violations.

According to the consumer, Comenity omitted from its disclosures about unsatisfactory purchases two paragraphs that were included in Model Form G-3(A). These paragraphs limited a consumer’s protections to purchases made using the credit card and to any unpaid amounts. However, any variation was small enough that the bank’s disclosures remained substantially similar to the model form, the court said. A creditor that provided disclosures that met the “substantially similar” standard was protected by Reg. Z’s model form safe harbor.

Failing to disclose that consumers who were not satisfied with a purchase paid for using the card had to contact the bank either in writing or electronically was not a violation, the court said, because neither TILA nor Reg. Z imposed that requirement. Moreover, even if Model Form G-3(A) added a restriction about the type of communication, that particular disclosure was among those described as optional. Failing to give an optional disclosure cannot amount to a violation, the court said.

For more information about constitutional standing issues, subscribe to the Banking and Finance Law Daily.

Monday, November 28, 2016

Ally to pay $52 million to settle issuance of mortgage-backed securities claims

By Stephanie K. Mann, J.D.

A settlement agreement has been reached between Ally Financial Inc. and the Office of the Special Inspector General for the Troubled Asset Relief Program for Ally’s allegedly improper subprime residential mortgage-backed securities (RMBS) in 2006 and 2007. Ally has agreed to pay $52 million in relation to 10 subprime RMBS, and the settlement resolves an investigation into alleged violations of the Financial Institutions Reform Recovery and Enforcement Act, specifically conduct related to the packaging, securitization, marketing, sale, and issuance of the RMBS.

“Ally received substantial TARP bailout funds. With this agreement, Ally acknowledges that the underwriting and diligence process was deficient in connection with the securitization of 40,000 toxic subprime mortgage loans by its subsidiaries—exactly the type of abuse that contributed to the financial crisis,” said Christy Goldsmith Romero, the Special Inspector General for the Troubled Asset Relief Program.

Penalties. Under the settlement agreement, Ally is required to pay a $52 million civil penalty and to immediately discontinue operations of its registered broker-dealer, Ally Securities, LLC, which served as the lead underwriter on the subprime RMBS at issue. The broker-dealer served as the lead underwriter on the 10 subprime RMBS offerings issued in the RASC-EMX series between 2006 and 2007. Ally Securities dedicated a specialized marketing effort to create the RASC-EMX brand, securing investors for the RMBS offerings, and directing third-party due diligence on samples of the mortgage loan pools underlying the RMBS to test whether the loans comply with disclosures made to investors in the public offering documents.

As the lead underwriter, Ally Securities recognized in 2006 and 2007 that there was a consistent trend of deterioration in the quality of the mortgage loan pools underlying the RASC-EMX Securities that stemmed from deficiencies in the subprime mortgage loan underwriting guidelines, and diligence applied to the collateral prior to securitization. All RASC-EMX Securities sustained losses as a result of underlying mortgage loans falling delinquent.

Ally response. Following the settlement announcement, Ally Financial reaffirmed its commitment to remain focused on its strategic plan to build on its strengths in digital financial services, further grow its customer and deposit bases, and continue to deliver strong earnings growth.

For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.

Wednesday, November 23, 2016

‘One size fits all’ NY cybersecurity reg opposed by industry groups

By J. Preston Carter J.D., LL.M.

"We strongly disagree with the ‘one size fits all’ approach" taken by a proposed regulation that would require institutions regulated by the New York State Department of Financial Services to establish and maintain a cybersecurity program, states a letter from the Independent Bankers Association of New York State and the Independent Community Bankers of America. Their letter to the DFS stresses that limited resources are a concern for community banks. The organizations contend that the DFS proposal does not reflect that those banks set their risk parameters and determine how best to allocate resources to combat cyber threats in accordance with their own risk assessment.
DFS proposal. The proposed regulation would require New York banks, insurance companies, and other financial services institutions regulated by the State Department of Financial Services to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of the state’s financial services industry.  In a press release announcing the proposal, Governor Andrew M Cuomo called it a "first-in-the-nation" regulation that would protect New York State from the ever-growing threat of cyber-attacks.
Groups' response. The organizations object to the proposal’s application of a "uniform and unequal application of risk mitigation tactics" to community banks, some of which "may go beyond the risk profile of the institutions." They urge the DFS to allow community banks to adopt a reasonable risk assessment tool that would be used by the DFS in conducting an examination for compliance with the cybersecurity regulations.
In addition, the letter states, the DFS proposal does not recognize that community banks may participate in shared resource arrangements to achieve compliance and economies of scale. The organizations believe that the DFS should encourage information sharing through the existing channels, such as those promoted by the federal Cybersecurity Information Sharing Act of 2015, rather than mandating excessive reporting requirements.
The groups conclude by requesting that the DFS not issue a final rule but, instead, issue a revised proposal incorporating their comments and requesting additional comments from the industry.
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Tuesday, November 22, 2016

Fifth Third Bank commits to $30 billion community development plan with NCRC

By Thomas G. Wolfe, J.D.

As part of a collaborative effort with the National Community Reinvestment Coalition (NCRC), Fifth Third Bank is committing $30 billion in lending and investments to low-and moderate-income borrowers and communities over a five-year period—from 2016 to 2020. According to Fifth Third’s Nov. 18, 2016, release, the bank’s recently enhanced community development plan includes mortgage, small business, and community development lending as well as investing, philanthropy, and financial services for low- and moderate-income communities.

Plan highlights. According to the NCRC’s “Summary of the Community Action Plan” between the coalition group and Fifth Third, the bank’s $30 billion commitment represents 21 percent of Fifth Third’s assets, or 29 percent of its deposits. Fifth Third’s commitment covers locations in 10 states where the bank has branches: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Pennsylvania, and Tennessee. Approximately 145 community-based organizations of the NCRC’s membership in these states provided input before the agreement between the NCRC and Fifth Third was finalized.

Among other things, the community development plan is designed to fund:
  • $11 billion in mortgage lending to low- to moderate-income individuals and communities;
  • $10 billion in small business lending in all markets and communities to businesses with gross annual revenue below $1 million;
  • $9 billion in “Community Reinvestment Act” community development loans and investments, including support for affordable housing, revolving loan funds, Community Development Corporations, Community Development Financial Institutions, community pre-development resources, housing rehab loan pools, and community land trusts and land banks; and
  • $93 million in philanthropic work to “ensure adequate access to bank branches in LMI communities and communities of color, including opening at least 10 new branches.”
For more information about financial institutions' community development plans or compliance with the Community Reinvestment Act, subscribe to the Banking and Finance Law Daily.

Thursday, November 17, 2016

CFPB charges pawnbroker misled consumers with low rate

By Andrew A. Turner, J.D.

The Consumer Financial Protection Bureau has filed an enforcement action in federal court against B&B Pawnbrokers, Inc. for deceiving consumers about the cost of its pawn and auto title loans because it did not include storage fees or processing fees in the finance charge. The CFPB’s lawsuit seeks to end B&B Pawnbrokers' illegal practices, obtain restitution for victims, and impose penalties.
“When consumers take out a loan, the lender by law must tell them the terms, including the actual annual cost of the loan,” said CFPB Director Richard Cordray. “B&B Pawnbrokers deceived consumers about what that true cost was.”

The CFPB alleges that Virginia based B&B Pawnbrokers misled its customers about the cost of its loans in more than 2,400 contracts. Specifically, the CFPB alleges that B&B Pawnbrokers unlawfully disclosed a misleadingly low annual percentage rate that did not reflect all of the fees and charges tacked on to the loan, which grossly understated the cost to consumers.
For example, when B&B Pawnbrokers made a $200 loan due in a month, it charged the consumer a $10 finance charge, a $10 storage fee, and a $20 processing fee. Each fee is a finance charge that must be included in calculating the annual percentage rate. The sum of these fees, $40, yields an annual percentage rate of 240 percent. B&B Pawnbrokers disclosed an annual percentage rate of only 120 percent.

The bureau’s complaint alleges that B&B Pawnbrokers' actions violated the Truth in Lending Act and Consumer Financial Protection Act and seeks monetary relief, injunctive relief, and penalties.
Virginia has a pending action against B&B Pawnbrokers for violations of the Virginia Consumer Protection Act, and the CFPB coordinated with Virginia in its investigation.

For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.

Wednesday, November 16, 2016

Did Wells Fargo retaliate against whistleblowers? Senators ask

By J. Preston Carter, J.D., LL.M.

In a letter to Wells Fargo's new CEO, Timothy J. Sloan, Sens. Elizabeth Warren (D-Mass), Ron Wyden (D-Ore), and Bob Menendez (D-NJ) question whether the bank’s filings with the Financial Industry Regulatory Authority, relating to the termination of employees for creating more than two million unauthorized checking and credit card accounts, reveal that the company took retaliatory action by reporting defamatory information on whistleblowers. The senators wrote that new information obtained from FINRA revealed that from 2011 to 2015, Wells Fargo filed over 200 termination reports (Form U5) with FINRA for employees who were fired for actions related to the unauthorized accounts scandal.

"These reports...confirm that Wells Fargo had ample information about the scope of fraudulent sales practices occurring at the bank long before the CFPB settlement, and they raise additional questions about Wells Fargo's response to this illegal activity," according to Warren’s press release. "If this is the case, then it would appear that Wells Fargo concealed key information from regulators that may have revealed the bank's misdeeds long before the September 2016 settlement."

Additionally, the senators wrote, recent public news reports suggest that Wells Fargo may have violated FINRA rules by filing incomplete or inaccurate U5s for many fired employees, raising questions about whether the company took retaliatory action by reporting defamatory information on whistleblowers.

The senators wrote, "According to these reports, Wells Fargo terminated employees...for failing to meet the bank's aggressive sales quotas; others were terminated after reporting illegal activity to Wells Fargo management. In an unknown number of these cases, Wells Fargo may have filed Form U5s that did not accurately reflect the reasons why employees were fired...If Wells Fargo submitted false or incomplete information about the fired employees in its mandatory disclosures to FINRA, the bank may have violated FINRA rules and misled regulators about the scope of the fraud."

For more information about regulating banks' sales practices, subscribe to the Banking and Finance Law Daily.

Tuesday, November 15, 2016

Claims about protected benefits violated debt collection law, CFPB argues

By Richard Roth

A debt collector’s misrepresentations about what a consumer needed to do to protect his Social Security benefits from garnishment violated the Fair Debt Collection Practices Act, the Consumer Financial Protection Bureau says. In an amicus curiae brief, the CFPB argues that the debt collector would have made misrepresentations and engaged in unfair collection practices even if it technically complied with New York law on establishing garnishment exemptions (Arias v. Gutman, Mintz, Baker & Sonnenfeldt, PC).

The suit began with a law firm’s effort to collect a judgment for back rent on behalf of a client. The firm served the consumer’s bank with forms required by a New York law that is intended to help consumers protect Social Security benefits or other exempt funds from garnishment. Under the state law, $2,500 (adjusted for inflation) in a consumer’s bank account automatically is protected from being garnished if exempt benefits have been deposited in the previous 45 days.

The remainder of the account balance is temporarily restrained. However, the consumer can secure the release of the funds by sending an exemption claim to the bank and creditor. The creditor then must either instruct the bank to release the restraint or begin a proceeding in state court to demonstrate that the funds in the account are not exempt.

Law firm’s actions. According to the brief, after setting aside the funds in the consumer’s account that were protected, the bank restrained nearly $1,300. The consumer had the bank send the firm account statements demonstrating that the restrained amount comprised protected Social Security benefits and included comparable information in his exemption claim. However, the firm refused to release the restraint and began the statutory court proceedings.

The affidavit on which the firm relied when it objected to the exemption claimed the firm could not determine whether the funds were exempt because the consumer had not supplied account records that started with a zero balance. The affidavit also asserted that Social Security benefits lost their exempt status if they were commingled with nonexempt funds and that the consumer had not proved he had not commingled the funds.

At the hearing, the firm agreed to release the restraint after an attorney reviewed records produced by the consumer—records that duplicated what the consumer had provided twice before, the bureau noted in its brief.

The consumer then sued the firm under the FDCPA, but the federal district court judge dismissed the suit.

Misrepresentations. The judge was wrong in deciding that the firm had not made an actionable misrepresentation, the bureau’s brief says. A misrepresentation that could discourage a least sophisticated consumer from exercising his legal rights is an FDCPA violation.

In this case, the state law imposes no requirement that the consumer produce account records starting from a zero balance. Neither was the consumer obligated to prove that he had never commingled exempt and nonexempt funds. Whether funds had been commingled was irrelevant, the CFPB adds, because it would not have altered the effect of the firm’s statements on the least sophisticated consumer.

The brief also noted that, in this case, the consumer had not been protected by an attorney. That increased the risk that the consumer could be misled.

Unfair collection practices. The law firm’s objection to the exemption claim was a baseless pleading that denied the consumer access to his exempt funds and could have resulted in his loss of those funds, the brief also argues. That constituted an unfair or unconscionable collection practice.

In fact, the FDCPA says that taking nonjudicial action to dispossess a consumer of exempt property is a per se violation, the brief says. This provision was included in the act specifically because of the consumer harm that could result.

For more information about debt collections, subscribe to the Banking and Finance Law Daily.

Monday, November 14, 2016

PHH Mortgage to pay $28M fine to New York regulator

By Charles A. Menke, J.D.

PHH Mortgage Corporation and its affiliate, PHH Home Loans LLC, have agreed to pay a $28 million fine and engage a third-party auditor for a 12-month period under a consent order entered into with the New York Department of Financial Services (DFS), Governor Andrew M. Cuomo has announced. The consent order follows a series of DFS examinations dating back to 2010 that revealed repeated deficiencies in the companies’ mortgage origination and servicing practices, including discrepancies relating to the documentation and processing of mortgage foreclosures. PHH Mortgage and PHH Home Loans are principally located in Mount Laurel, N.J. PHH Mortgage is a wholly-owned subsidiary of PHH Corporation, which is a publicly-traded company incorporated in Maryland.

DFS examinations. According to the order, multistate and DFS examinations revealed discrepancies in the companies’ origination of mortgage loans, including failing to give borrowers accurate good faith estimates on loans, imposing greater fees on unsuspecting borrowers at closings and, in some instances, failing to provide documentation showing that borrowers received agreed-to discounts. The examinations also showed that:

  • PHH Mortgage lacked formal and comprehensive policies and processes for executing foreclosure-related documents;
  • PHH Mortgage did not adequately monitor the operations of outside vendors it had engaged to perform mortgage servicing related tasks, including foreclosure attorneys;
  • PHH Home Loans failed to establish adequate controls to prevent mortgage loan originators employed by one PHH entity from originating loans in another PHH entity’s name, or to prevent employees whose mortgage loan originator licenses had expired or been withdrawn from taking loan applications;
  • PHH Home Loans lacked adequate controls to ensure that electronic signatures appearing on loan applications were those of the mortgage loan originators who actually took the application from the borrower; and
  • PHH Home Loans’ mortgage loan originator compensation plan failed to prevent against steering borrowers into risky or unnecessarily high-cost loans or basing a mortgage loan originator’s compensation on the terms of the particular loan brokered.

Persistent deficiencies. Additional DFS examinations found that deficiencies in PHH Mortgage’s business practices persisted. According to the DFS: (1) unlicensed individuals were allowed to originate mortgage loans; (2) PHH Mortgage failed to retain copies of required pre-application disclosures to some customers; and (3) some consumers failed to receive discounted rates they had been promised. Moreover, in January 2016, PHH Mortgage disclosed it had improperly assessed $1.2 million in attorneys’ fees against New York borrowers in default as a result of a coding error in an automated invoice processing system that was initially discovered in 2014. PHH has represented to the Department that it has made full financial restitution to borrowers affected by this error, the order stated.

Corrective actions acknowledged. The DFS acknowledged that a 2014 examination found that PHH Mortgage had taken substantial steps to improve its servicing operations, including: (1) outsourcing its internal audit function; (2) implementing comprehensive compliance policies and procedures; and (3) addressing all issues raised in complaint files. The DFS further noted improvement in the company’s Legal and Regulatory Compliance function. However, “these improvements were insufficient to bring PHH Mortgage into material compliance with federal and state law,” the order said.

Auditor. The independent third-party auditor, which must be approved by the DFS, will be responsible for verifying the identity of borrowers impacted by other improper closing costs so PHH can make refunds to those consumers. The auditor will also review PHH’s business practices to ensure compliance with mortgage origination and servicing laws and regulations.

PHH response. In a statement issued by PHH Corporation following the settlement announcement, the company said it “agreed to resolve concerns raised by the DFS arising from legacy servicing and origination examinations conducted between 2010 and 2014 in order to avoid the distraction and expense of litigation.” The company further emphasized its efforts in improving servicing operations “[a]s acknowledged by the DFS in the agreement,” adding that the “enhancements are part of [its] ongoing investments in compliance, technology, process management, and oversight infrastructure.”

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Sunday, November 13, 2016

Trump election spurs comments

By Katalina M. Bianco

Comments on Republican Donald Trump’s presidential election win have been coming in fast and furious. Several banking and business organizations have congratulated Trump and expressed their willingness to work with his new administration and Congress to achieve shared goals for the nation. Senator Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, also weighed in on the election as did Timothy Q. Karcher of Proskauer Rose LLP.

Platform on Dodd-Frank Act. As adopted in July 2016, the Republican party’s platform challenged the Dodd-Frank Act’s creation of the Consumer Financial Protection Bureau. Among other things, the platform asserted that the CFPB was "deliberately designed to be a rogue agency.” Moreover, addressing federal regulation in general, Donald Trump stated in his economic plan that, if elected, he would "issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety in order to give our American companies the certainty they need to reinvest in our community, get cash off of the sidelines, start hiring again, and expanding businesses. We will no longer regulate our companies and our jobs out of existence."

Karcher analysis. Against this backdrop, Karcher offered his analysis of the impact the new Trump administration likely will have on Dodd-Frank regulatory reforms:

"Clearly, Dodd Frank has led to higher regulatory and compliance costs for all banks, and the criticism is that Dodd-Frank actually stifled growth by making it harder for banks to lend money."

"I think large portions of Dodd-Frank are likely to face significant pressure and potential reform in a Trump administration. During his campaign, Trump vowed to stop new regulations on banks, and indicated that he believed the regulatory environment for banks was unduly stifling. It’s probably too early to tell how President Trump, and Congress, will implement the changes or what form they will take."

"While candidate Trump hinted that he would repeal Dodd-Frank, I think it is more likely that it will be remodeled rather than eradicated. One of the results of Dodd Frank was to consolidate rulemaking, enforcement, and regulatory authority over a number of different enumerated consumer protection laws (TILA, RESPA, FDCPA, etc.), which were previously governed by different agencies, and I think it makes sense to keep those laws under a single regulatory umbrella."

"Some argue that the financial industry has gotten used to the reforms. The CFPB has been in existence for more than 5 years, and the financial industry has spent billions adapting to the new rules. To sweep the new rules away in favor of the unknown probably does not make much sense. Moreover, the CFPB is likely facing some structural changes in light of the recent PHH decision, and those changes could complement some of the changes President Trump and the Republican legislators are looking for. Time will tell."

Brown statement. Senator Brown issued a statement following election results that will keep control of the Senate in Republican hands. Senator Mike Crapo (R-Idaho) is expected to be the new chairman of the committee.

"Senator Crapo and I have a history of working together to produce results on the Finance Committee. I look forward to bringing that experience to the Banking, Housing, and Urban Affairs Committee where I hope Senator Crapo and I can find common ground on reasonable, commonsense ideas.” Crapo backed Trump when he became the presumptive Republican nominee in May, but revoked his endorsement in October. At the end of that month, however, he unrevoked his endorsement and said he would vote for the Republican ticket.

"Americans who believe the system is rigged certainly don't want to see Wall Street write the rules," Brown continued. "We must continue fighting to preserve and strengthen Wall Street reforms that protect American families from being on the hook for another bailout.” The senator noted, "We cannot forget the full title of the Committee is Banking, Housing, and Urban Affairs. Both Presidential candidates proposed badly needed infrastructure investments that will help get Americans back to work, so infrastructure should be a top priority for the Committee next year. And I look forward to learning more about the President elect’s plans for revitalizing our cities."

Industry comments on election. American Bankers Association President and CEO Rob Nichols remarked, "We call on the administration and Congress to come together and work for the common good. We look forward to working with members of both parties on policy solutions that will allow banks to help accelerate economic growth, create jobs, better serve their local communities and help their customers and clients succeed."

The ABA expressed its eagerness to work with the Trump Administration to achieve a "vibrant and growing economy." In a letter to Trump, the ABA wrote that in order to ensure the success of American customers, client, and communities, the trade association proposed the following principles and policies that the new Administration should keep in mind: a growing economy in which all Americans can participate;  a thriving housing market that provides stability and mobility; banking technologies that advance competition, convenience, and safety, such as fintech facilitation and cybersecurity requirements. New banking technologies have the potential to increase U.S. competitiveness, promote financial inclusion, and expand access to banking services that drive the economy, such as Fintech facilitation, cybersecurity requirements and data breach reductions, and market pricing for card services.

Mortgage Bankers Association President and CEO David Stevens stated, "Today our industry is operating in the safest and soundest lending environment ever designed." Noting the MBA’s desire to work with a new Trump administration to restore housing as a "lead economic driver," Stevens commented that "it is critical that President Trump focus on three main areas—ensuring an adequate supply of affordable housing, bringing first time homebuyers back into the housing market, and ensuring certainty in regulations."

U.S. Chamber President and CEO Thomas Donohue, acknowledged that "Americans have just lived through a bitter, personality-driven campaign that exposed some deep divisions in our country." Indicating that the Chamber and its members are ready to help the Trump administration accomplish the goal of growing the economy, creating jobs, and lifting incomes for all U.S. citizens, Donohue said, "The number one goal of the Chamber’s political program this cycle was to save the pro-business majority in the Senate. Yesterday voters agreed, and chose pro-business majorities in the Senate and the House to represent them in Washington."

Similarly, Financial Services Roundtable CEO Tim Pawlenty urged Trump and Congress to enact policies that "grow the economy, spur innovation, protect both consumers and taxpayers, add good-paying jobs, and help more Americans reach their financial goals."

The Consumer Bankers Association congratulated the new President-elect and committed to working for a five-person, bipartisan commission at the Consumer Financial Protection Bureau, policies to help banks innovate in the 21st century, and improving the regulatory environment so banks may continue to meet consumer needs. "With a new president-elect and changes to the House and Senate, government and industry leaders have a chance to find workable solutions on issues most important to consumers," said CBA President and CEO Richard Hunt. "This is especially true for banking issues, as a strong banking sector is critical to a strong economy."

According to Dennis Kelleher, President and CEO of Better Markets, the election "was a scream from tens of millions of hardworking Americans for elected officials and policymakers to prioritize their economic circumstances, hopes and dreams." Too many families are still feeling the effects of the 2008 financial crisis. According to a Federal Reserve Board survey, 50 percent of Americans do not have enough money to cover a $400 emergency. The election reflects a "profound loss of faith and trust in government and government officials." Kelleher expressed the trade association’s willingness to work with the incoming Trump Administration to ensure that a "strong and effective financial reform is preserved and protected to prevent another financial crisis."

For more information about the election's impact on banking, The Dodd-Frank Act, and the CFPB, subscribe to the Banking and Finance Law Daily.

Friday, November 11, 2016

Where’s the line in lending discrimination? Banks and city argue

By Richard A. Roth, J.D.

The attorney arguing a Fair Housing Act suit in the Supreme Court on behalf of Bank of America and Wells Fargo conceded that cities sometimes can sue mortgage lenders for discrimination, but went on to say that Miami’s suit went too far. The two banks are attempting to convince the Court that Miami’s interests were not within the zone of interests to be protected by the FHA and that the city’s claimed injuries would not have been proximately caused by the banks’ lending practices. The Justices’ questions in the Nov. 8, 2016, argument appeared to suggest that they were receptive to the city’s suit but were concerned over how to set a limit on liability.

As described by the Eleventh Circuit’s two opinions—City of Miami v. Bank of America Corp. and City of Miami v. Wells Fargo & Co.—Miami asserts that the banks engaged both in redlining—refusing to make loans to minority borrowers on the same terms that were available to nonminority borrowers—and reverse redlining—making loans to minority borrowers on exploitative terms. The banks refused to make loans to minority borrowers on terms similar to those available to white borrowers with comparable credit qualifications, offered minority borrowers loans only on predatory terms, and refused to extend refinancing loans to minority borrowers on terms similar to those available to white borrowers, Miami claims.

Violations and injuries. The banks’ lending practices violated the FHA in two ways, the city said. First, they amounted to intentional discrimination against black and Hispanic borrowers. Second, they had a disparate impact on those borrowers, resulting in a disproportionate number of foreclosures on their properties and a disproportionate number of predatory loans in their neighborhoods.

Miami claimed several types of damages from the violations. Properties that the banks foreclosed on lost value, and the foreclosures also reduced the value of surrounding properties, the city said. This resulted in reduced property tax revenues. Also, the city had to pay higher police, fire protection, and garbage collection costs to deal with problems presented by properties that often remained vacant after foreclosures.

Zone of interests. The banks’ position, as laid out by Neal Katyal, is that Miami’s complaint failed in two ways. First, because the injuries the city described were unrelated to the FHA’s purpose, the city was not within the zone of interests to be protected by the act. Second, the injuries were six steps remote from the lending practices, which was too indirect to satisfy proximate cause requirements. Katyal conceded that Miami might be able to bring an FHA suit that cleared both hurdles, but he said this was not that suit.

According to Katyal, the city was attempting to borrow homeowners’ discrimination claims and "cut and paste" them into a suit intended to seek a remedy for the city’s economic injuries. The FHA was intended to redress discrimination injuries. Miami might be able to recover for injuries it suffered that directly resulted from segregation, but not for the various extra costs it was describing, he said.

Katyal agreed that "if the complaint were written to say that it was about segregation causing blight, we would have no problem with it." That could put Miami within the FHA’s zone of interests. Even damages caused indirectly from that injury could be recoverable.

However, Justice Kagan, at least, had difficulty with the argument that the city was not describing "a segregation harm." She also questioned Katyal on the import of 1988 FHA amendments that apparently accepted that a city’s interests would be within the zone of interests the act was to protect.

Proximate cause. Even if Miami could satisfy the zone of interests requirement, it could not show proximate cause, Katyal then told the Court. The city’s ultimate claimed injury was a reduction of its tax base. However, to go from discriminatory loans to a reduced tax base involved intermediate steps of loan defaults, leading to foreclosures, resulting in more vacancies. Proximate cause generally is restricted to only one step from a wrongful act to an injury, he asserted.

Congress could write a law that allowed damages for less direct injuries, but the FHA maintained the traditional requirement of a "direct, close, one-to-one relationship" between the act and the injury, according to Katyal.

Justice Kagan did not accept that argument fully, either. She reminded Katyal that proximate cause is about whether an injury is foreseeable, not whether it is direct.

The city replies. Miami makes significant efforts to encourage fair housing, to the extent of having a department responsible for it, according to Robert Peck, who argued for the city. That meant it satisfied the zone of interests requirements. The city’s injuries were discrimination injuries.

According to Peck, Miami’s injuries were a direct result of the banks’ discriminatory lending. This led Chief Justice Roberts to probe where Peck would draw the line. If reduced property taxes are a direct injury, what about reduced sales taxes because a business in a blighted area closes? What about reduced revenue from tourism?

Peck attempted to distinguish between property taxes and other city revenues by saying that property taxes were tied specifically to property values; sales taxes and tourism revenues were not. The city should be able to recover damages for injuries that affected property. Moreover, less direct injuries might not be foreseeable, meaning there would be no proximate cause.

Government’s argument. The U.S. government, arguing as a friend of the court, agreed with the city that reduced tax revenues due to reduced property values constituted an injury the FHA was intended to redress. Assistant to the Solicitor General Curtis Gannon told the Court that the FHA was intended to provide a remedy when someone was injured by housing discrimination. Refuting Katyal’s argument, the FHA did allow the city to cut and paste homeowners’ injuries into its own claim, he maintained. The city could seek a remedy for its injuries even if the injuries resulted from a violation of someone else’s rights.

Any limit on who could sue should be found in the proximate cause analysis, not the zone of interest analysis, Gannon said. The injuries that Miami described would have been proximately caused by the banks’ practices, he added.

Agreeing with Peck, Gannon said proximate cause would be showed by a link to property value. The city’s injury that resulted from falling property values would be proximately caused by—that is, reasonably foreseeable from—the bank’s lending discrimination.

Pushed by the Chief Justice, Gannon claimed that the city could sue a lender based on a single instance of lending discrimination, as long as there was a decline in property value.

The cases are No. 15-1111 and No. 15-1112.

For more information about these cases, subscribe to the Banking and Finance Law Daily.

Thursday, November 10, 2016

CFPB highlights supervisory efforts, unveils new guidance, exam procedures

By Katalina M. Bianco, J.D.

Recent Consumer Financial Protection Bureau supervisory actions in the areas of deposits, mortgage servicing, and credit cards returned $11.3 million to more than 225,000 consumers in the period between May and August 2016, according to the bureau’s latest Supervisory Highlights (edition 13). Additionally, CFPB’s supervisory activities have either led to or supported two recent public enforcement actions, resulting in over $28 million in consumer remediation and an additional $8 million in civil money penalties. The report also reveals violations the CFPB has uncovered in student loan servicing, auto loan origination and servicing, debt collection, and mortgage origination.
"Our examiners continue to find sloppy or callous practices among some student loan servicers and other financial institutions that violate the law and put consumers at risk," said CFPB Director Richard Cordray. "If their practices hurt consumers, they need to rethink and change their practices in light of the actions and observations found in this report."
The CFPB report provides information on compliance with bureau rules and regulations, a discussion on redlining, new exam policies, and best practices for better communication with non-English-speaking consumers. In conjunction with this edition of Supervisory Highlights, the bureau issued revised exam procedures for student lending and servicing, updated guidance on compliance for service providers, and new exam procedures for reverse mortgages.
Compliance management systems. The CFPB indicates in the report, "Worthy of note are the beneficial practices centered on good compliance management systems" in the areas of automobile loan origination, debt collection, and mortgage origination. The report covers both CMS strengths and deficiencies.
Issues uncovered. The report details specific issues discovered during examinations in the areas covered during the period. Key findings include the following:
  • Student loan servicers unfairly denied or failed to approve qualified students’ affordable payment plans despite the fact that eligible borrowers with federal student loans have a legal right to affordable payments based on their monthly income. 
  • One or moreauto loan servicers refused to return personal belongings from a borrower’s repossessed car unless the borrower paid a storage fee. 
  • Debt collectors charged illegal payment processing fees and made misleading collection calls about consumers’ credit scores or reports.
Fair lending. The report includes information on fair lending. The Dodd-Frank Act, Equal Credit Opportunity Act, and Reg. B mandate that the bureau’s Office of Fair Lending and Equal "ensure the fair, equitable, and nondiscriminatory access to credit" and "promote the availability of credit." Specific fair lending topics include:
  • the provision of language services to limited English proficient consumers;
  • Home Mortgage Disclosure Act data collection and reporting reminders for 2017; and
  • redlining—a lender provides unequal access to credit or credit terms because of the race, color, national origin, or other prohibited characteristic of those in the area where the credit seeker resides or will reside, or the location of the residential property to be mortgaged.
Blog post. The CFPB posted information on redlining and the ECOA on its blog to help consumers understand how the ECOA can help them. The bureau urged consumers to contact the CFPB to submit complaints or share their stories. A follow-up post on the ECOA lists warning signs of discrimination for consumers.
Revised exam procedures for student lending and servicing. The CFPB’s revised education loan exam procedures address servicing practices affecting borrowers, from payment processing and routine communications to the handling of requests for payment relief by distressed borrowers. The procedures explain how examiners assess risks to consumers and review student loan servicers’ compliance with federal consumer financial law.
Updated CFPB guidance on compliance for service providers. The bureau released Compliance Bulletin and Policy Guidance; 2016-02, Service Providers to clarify that the depth and formality of the risk management program for service providers may vary depending upon the service being performed—its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with federal consumer financial laws and regulations. According to the CFPB, this amendment is needed to clarify that supervised entities have flexibility and to allow appropriate risk management. The bulletin replaces Compliance Bulletin 2012-03.
Reverse mortgage servicing. The CFPB describes a reverse mortgage as a special type of loan that allows older homeowners to borrow against the equity in their homes. Instead of making payments to the servicer, the borrower receives funds from the lender. The borrower may elect to receive the funds as monthly payments, a lump sum, or by accessing a line of credit. These funds, plus the interest charged on the loan, and any fees such as insurance premiums or servicing fees, increase the balance of the loan each month. Over time, the loan amount grows, and must be re-paid when the borrower dies or a default event occurs.
New examination procedures that apply to reverse mortgage servicing are "a stand-alone resource to complete a reverse mortgage servicing review." The exam procedures consist of eight modules. According to the bureau, depending on the scope, in conjunction with the compliance management system and consumer complaint response review procedures, each reverse mortgage servicing examination will include one or more of the modules.
For more information about Supervisory Highlights and CFPB compliance guidance, subscribe to the Banking and Finance Law Daily.

Wednesday, November 9, 2016

Court hears arguments on Fannie Mae’s ‘sue and be sued’ powers

By J. Preston Carter, J.D., LL.M.

In Nov. 8, 2016, oral arguments, the U.S. Supreme Court questioned the parties to a case that may well set the boundaries for subject matter jurisdiction for lawsuits to which Fannie Mae is a party.

The case in question, Lightfoot v. Cendant Mortgage Corp., involved a lawsuit by homeowners against Fannie Mae after a home mortgage foreclosure. The homeowners had unsuccessfully sued in federal court and in California state court, raising only claims under state law. However, Fannie Mae removed the suit to federal district court, asserting that the "sue and be sued" language in 12 U.S.C. §1723a(a) established federal jurisdiction. The district court judge agreed with Fannie Mae’s jurisdictional argument, and she later dismissed the homeowners’ suit. The homeowners appealed, claiming that the federal district court could not dismiss their suit because it had no jurisdiction.

Subject matter jurisdiction. The U.S. Court of Appeals for the Ninth Circuit ruled that Congress conferred jurisdiction on the federal courts when it provided that Fannie Mae had the power "to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal." According to the Ninth Circuit, a "sue and be sued" clause in a federal statute confers federal jurisdiction if it specifically mentions federal court, as decided in American National Red Cross v. S.G., 505 U.S. 247 (1992). The law creating Fannie Mae specifically says "State or Federal." The appellate court rejected the position of a dissenting opinion in Red Cross that argued a "sue and be sued" clause creates only a corporate capacity to litigate. Under that reasoning, subject matter jurisdiction would have to be derived from another provision of federal law.

"Court of competent jurisdiction." During oral arguments before the Court, E. Joshua Rosenkranz, representing the petitioners/homeowners stated, "There is only one natural way to read the language at issue here. A ‘court of competent jurisdiction’ is a court that has an independent source of subject-matter jurisdiction. That is what this Court has held five times those words mean." He added, "And the only way to find out whether a court is a ‘court of competent jurisdiction’ is to examine the statutes creating that court and granting it jurisdiction."

Justice Breyer noted that of the five cases cited as precedent, three were against the petitioners’ position; two supported their position; and the fifth case was "weaker" for the petitioners. He added that one page of legislative history cited by the petitioners "explicitly [says], you’re right."

Ann O’Connell, Assistant to the Solicitor General, argued as amicus curiae, in support of the petitioners. O’Connell stated, "The government’s view is that the rule of Red Cross should not be extended to a statute that authorizes a federally chartered corporation to sue or be sued in a ‘court of competent jurisdiction.’" She added, "The best reading of that phrase in Fannie Mae’s charter is that it authorizes the corporation to sue and be sued in a Federal or State court that is vested with jurisdiction through some other provision of law."

Representing the respondent mortgage company, Brian P. Brooks stated, "The Red Cross decision reaffirmed a strong and long-standing rule . . . which sets a baseline for Congress to follow when it chooses to pursue Federal policy through the corporate form." He added, "But adding the words "competent jurisdiction" is pretty weak tea as a solution for abolishing jurisdiction that otherwise existed, particularly given the history of what was going on."

Justice Ginsberg questioned Brooks asking, "Well, your—your position then is competent jurisdiction—as long as you have the word ‘Federal’—‘State’ or ‘Federal,’ you’re home free. So it doesn’t the words ‘of competent jurisdiction’ doesn’t mean anything. They don’t—it’s the use of the word ‘Federal’ that gets you into Federal court. And ‘of competent jurisdiction,’ they just tagged along those words, and they don’t mean anything."

During Brooks’ argument, Chief Justice John Roberts expressed concern that 60,000 state-law foreclosure actions were headed to the federal courts. Brooks, using Freddie Mac’s federal subject jurisdiction as an analogy, noted that "Freddie Mac has almost as many foreclosures as Fannie Mae has" and "[t]here has been no race to the Federal courthouse."

For more information about banking and finance petitions and cases pending before the Supreme Court, subscribe to the Banking and Finance Law Daily.

Tuesday, November 8, 2016

CFPB’s disclosure proposal has ‘free speech’ problems, ACLU notes

By Thomas G. Wolfe, J.D.
Recently, the American Civil Liberties Union commented on the Consumer Financial Protection Bureau’s proposed amendments to its rule governing the disclosure of records and information. While the ACLU expressed its appreciation for “the importance of the Bureau’s investigative work,” the ACLU asserted that the CFPB’s proposal “presents serious First Amendment problems.”
More specifically, in its Oct. 20, 2016, comment letter to the CFPB, the ACLU maintains that certain proposed amendments would operate as “a prior restraint on speech” for recipients of civil investigative demands (CIDs) or “notice and opportunity to respond and advise” (NORA) letters from the CFPB. According to the ACLU, recipients of CIDs or NORA letters would be restrained—at least initially—from voluntarily disclosing either the receipt or the content of the CIDs or NORA letters in violation of the First Amendment.
In August 2016, the CFPB proposed amendments to the procedures used by the public to obtain information from the Bureau under the Freedom of Information Act, under the Privacy Act of 1974, and in legal proceedings. In addition, the CFPB proposed modifications to its rule covering the confidential treatment of information obtained from persons in connection with the exercise of its authorities under federal consumer financial law.
Thorny problems. While commending the CFPB for its investigative work, “particularly in the area of Equal Credit Opportunity Act enforcement,” the comment letter underscores the ACLU’s concerns about the proposal’s restrictions on free speech. Among other things, in urging the CFPB to reconsider its proposal, the letter notes that:

  • the ACLU understands and agrees with the CFPB’s restrictions on its own disclosure of CID and NORA information;
  • while a CID or NORA letter recipient would be allowed to disclose certain information to specified individuals under specified circumstances, the disclosure to others, however, would only be permitted “with the prior written approval of the [CFPB’s] Associate Director for Supervision, Enforcement, and Fair Lending;”
  • this “prior written approval” requirement imposes a prior restraint on speech for those CID and NORA letter recipients who prefer not to remain silent and instead wish to disclose information about the receipt or the content of these CFPB requests;
  • other federal regulatory agencies do not use this type of “gag rule;” and
  • it is inconsistent for the CFPB to post petitions to set aside CIDs on the Bureau’s website for “transparency” purposes while simultaneously prohibiting a party from posting information on its own website about a CID it has received from the CFPB.
For more information about challenges to proposals by the Consumer Financial Protection Bureau, subscribe to the Banking and Finance Law Daily.

Monday, November 7, 2016

Register for "Will CFPB be the Same at Age 6?" webinar

On Wednesday, Nov. 16, 2016, the experts at Wolters Kluwer are presenting a complimentary 30-minute webinar, After turning 5, will the CFPB be the same at 6?.

Katalina M. Bianco, J.D. and John M. Pachkowski, J.D. will recap the CFPB’s activities since its inception and take a look at what lies ahead for the bureau. Highlights include:
  • the implications of the general election on the bureau’s mission;
  • a recent court decision holding that the CFPB’s single-director structure is unconstitutional;
  • if legislation introduced in 2016 could change the structure and funding of the bureau; and
  • key CFPB enforcement activity and rulemaking proposals to date and what we may expect moving forward.
The webinar will be presented on Nov. 16, 2016, at 9:00a.m. CST. 

Register here.

Thursday, November 3, 2016

Treasury officials pitch access and affordability for housing reform

By Andrew A. Turner, J.D.

The need for comprehensive housing finance reform to address the need for access to affordable housing was emphasized by Counselor to the Secretary of the Treasury Antonio Weiss and Assistant Secretary for Economic Policy Karen Dynan, in the first in a series of issue briefs that will focus largely on government-sponsored enterprises. Key features supporting access to mortgages and affordable rental housing, the authors said, involve:
  • incentivizing affordable credit pricing;
  • implementing “duty to serve” provisions for underserved markets;
  • establishing national loss mitigation standards to bolster borrower protections through the cycle; and
  • providing funds dedicated to affordable housing construction and preservation.

Affordable credit pricing. A mandate to provide credit to all creditworthy borrowers through economic cycles should be a condition for being able to issue mortgage-backed securities with a government guarantee, the issue brief asserts. “To further promote broadly affordable pricing of credit, an independent regulator could be invested with specific authorities, including, but not limited to, the review and approval of guarantee fees.”

Neglected market segments. A duty to serve underserved housing markets should be paired with appropriate incentives and enforcement measures, according to Weiss and Dynan.

National loss mitigation standards. Housing finance reform legislation, in the view of the Treasury officials, “should invest the housing regulatory agency responsible for overseeing any regulated guarantor with the authority to set and oversee loss mitigation standards for government guaranteed and private mortgages.”

Multifamily affordable rental housing. To address a shortage in affordable rental housing, Weiss and Dynan also see a need for housing finance reform that provides financing that expands access for renters.

Coming next. Future commentaries in the series will address the need for a system to support the housing market in both good and bad economic times, create a level playing field for financial institutions and consumers, and provide regulatory oversight.

For more information about housing finance reform, subscribe to the Banking and Finance Law Daily.

Wednesday, November 2, 2016

OCC’s responsible innovation framework paving way for new charter?

By John M. Pachkowski, J.D.

As it moves closer to the possible granting of a “special purpose” national bank charter to a financial technology (fintech) company, the Office of the Comptroller of the Currency has established an Office of Innovation as part of its efforts to improve the agency’s ability to identify, understand, and respond to financial innovation affecting the federal banking system. 

The Office of Innovation is part of the OCC’s “Recommendations and Decisions for Implementing a Responsible Innovation Framework,” which will be the blueprint that the agency will use to support the ability of national banks and federal savings associations to fulfill their role of providing financial services to consumers, businesses, and their communities through responsible innovation that is safe and sound, consistent with applicable law, and protective of consumer rights. Commenting on the Office of Innovation, Comptroller of the Currency Thomas Curry noted, “By establishing an Office of Innovation, we are ensuring that institutions with federal charters have a regulatory framework that is receptive to responsible innovation and the supervision that supports it.”

Besides the establishment of the Office of Innovation, the framework also provided that the OCC should:
  • establish an outreach and technical assistance program;
  • conduct awareness and training activities;
  • encourage coordination and facilitation;
  • establish an innovation research function; and
  • promote interagency collaboration.

For more information about Fintech, subscribe to the Banking and Finance Law Daily.

Tuesday, November 1, 2016

CFPB warns 44 mortgages lenders to comply with required data

By Stephanie K. Mann, J.D.

The Consumer Financial Protection Bureau has issued warning letters to 44 mortgage lenders and mortgage brokers who may be required to collect, record, and report data about their housing-related lending activity and who may be in violation of those requirements. “Financial institutions that fail to report mortgage information as required make it harder to identify and address discriminatory lending,” said CFPB Director Richard Cordray. “No mortgage lender that is required to report their loan data can avoid this responsibility.”

The Home Mortgage Disclosure Act requires many financial institutions to collect and annually report data about their housing-related lending activity, including home purchase loans, home improvement loans, and refinancings that they originate or purchase, or for which they receive applications. The public and regulators use this information to monitor whether financial institutions are serving the housing needs of their communities, to assist in distributing public-sector investment, and to identify possible discriminatory lending patterns.

Data transparency helps to ensure that financial institutions are not engaging in discriminatory lending or failing to meet the credit needs of the entire community, including low- and moderate-income neighborhoods. Financial institutions that avoid their responsibility to collect and report mortgage loan data hinder regulatory efforts to enforce fair lending laws.

The CFPB identified the 44 companies by reviewing available bank and nonbank mortgage data and advises the companies to review their practices to ensure they comply with all relevant laws. The companies are encouraged to respond to the bureau to advise if they have taken, or will take, steps to ensure compliance with the law. They can also tell the CFPB if they think the law does not apply to them. According to the letters, the bureau has not yet made a determination that a legal violation has occurred.

In October 2015, the CFPB finalized a rule updating the reporting requirements of the Home Mortgage Disclosure Act regulation. The CFPB has said that the rule will improve the quality and type of data that is collected and reported, including shedding more light on consumers’ access to credit. Most of the provisions of the final rule will take effect on Jan. 1, 2018.

For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.

Remand might make standing challenge wasted effort

By Richard Roth

A temporary staffing company has convinced a federal district court judge that a job applicant had not described a concrete injury from a claimed Fair Credit Reporting Act violation, but might not realize any benefit from the victory. The judge decided that the federal courts have no jurisdiction over the suit, but remanded it to the Illinois state court where it had originated. The state court has its own rules on who has standing to sue, the judge noted, and is not bound by Article III of the Constitution (Hopkins v. Staffing Network Holdings, LLC, Oct. 18, 2016).

The FCRA has specific requirements for disclosures that must be given when a prospective employer wants to run a background check on a job applicant. Among the requirements is that the disclosures must be given in a document that is restricted solely to that purpose, that the applicant must be told a consumer report may be obtained, and that the applicant must give written consent (15 U.S.C. §1681b(2)).

Claimed FCRA violation. The job applicant claimed the company violated the requirements by including additional information in the disclosure document and that the FCRA was violated when the company obtained a consumer report.

The judge noted, however, that the applicant had not described any harm from the alleged error. The applicant had not said that he was unaware a consumer report would be obtained, that the report was inaccurate, that he was confused by the extra information, or that he would not have given his consent if the extra information had not been included.

Standing to sue. Article III of the Constitution says that federal courts have jurisdiction only over cases and controversies. This has been interpreted to require plaintiffs to establish standing to sue, and one element of standing is a concrete, particularized, and actual injury. The company argued the applicant fell short, citing the Supreme Court decision in Spokeo, Inc. v. Robins. The judge agreed.

Spokeo also dealt with the FCRA. In the decision, the Supreme Court said that a concrete injury has to be an injury that actually exists. A “bare procedural violation” of a law that does not result in any actual harm will not confer standing to sue.

The violation described by the job applicant might cause actual harm, the judge said, but it might not. In such a case, the applicant needed to describe some harm, and he had not done so.

Remedy. The applicant had filed his suit in the Illinois state court. The company had removed the suit to federal court and then sought a dismissal based on a claim that the applicant did not have standing. Once the judge agreed that there was no standing, the next question was the appropriate remedy.

No standing to sue meant no federal court jurisdiction, the judge said, but it did not mean no state court jurisdiction. The case or controversy restriction applies only to federal courts. The case had to be remanded to the state court to determine whether state standing requirements were satisfied.

As a result, the suit will go back to the state court where it started.

For more information about consumer protection litigation, subscribe to the Banking and Finance Law Daily.