By Katalina M. Bianco, J.D.
Proposals that would restrict collector contact with consumers and require debt collectors to have more and accurate information before attempting to collect debts would "drastically overhaul" the debt collection market, according to the Consumer Financial Protection Bureau when issuing an outline of the proposals under consideration on June 28, 2016. The proposals apply only to third-party debt collectors and others covered by the Fair Debt Collection Practices Act, including many debt buyers, but the bureau has indicated that it will address first-party collectors soon "on a separate track."
"In the debt collection market, notably, consumers do not have the crucial power of choice over those who do business with them when creditors turn their debts over to third-party collectors. They cannot vote with their feet," CFPB Director Richard Cordray said in prepared remarks for a debt collection field hearing on June 28. Speaking of the proposals, Cordray said, "Consumers should not be limited to being passive participants in a system they do not trust or understand. We are determined to put the burden of proof on the debt collector and take some of this weight off the consumer."
Information integrity. The proposals address the most common complaints consumers have voiced about debt collection practices. In recent years, the most common debt collection complaint received by the CFPB concerns collectors seeking to recover from the wrong consumer or in the wrong amount, according to the bureau. Therefore, the CFPB is considering a requirement that debt collectors "substantiate," or possess a reasonable basis for, claims that a particular consumer owes a particular debt. Collectors would have to scrub their files and substantiate the debt before contacting consumers. For example, collectors would have to confirm that they have sufficient information to start collection, such as the full name, last known address, last known telephone number, account number, date of default, amount owed at default, and the date and amount of any payment or credit applied after default.
The bureau also is considering the provision of an improved FDCPA validation notice and a Statement of Rights that would provide consumers with the most critical information needed to determine whether they owe a particular debt and to navigate the debt collection process more generally.
Communications. Collectors would be limited to six communication attempts per week through any point of contact before they have reached the consumer. If a consumer wants to stop specific ways collectors are contacting them, for example on a particular phone line, while they are at work, or during certain hours, it would be easier for a consumer to do that under the proposed requirements. The CFPB also is considering proposing a 30-day waiting period after a consumer has passed away during which collectors would be prohibited from communicating with certain parties such as surviving spouses.
Debt details. Collectors would be required to include more specific information about the debt in the initial collection notices sent to consumers. This information would include the consumer’s federal rights. Collectors also would have to disclose to consumers, when applicable, that the debt is too old for a lawsuit.
Disputes. The proposal under consideration would add a "tear-off" portion to the initial collection notice sent to consumers that consumers could send back to the collector to easily dispute the debt, with options for why the consumer thinks the collector’s demand is wrong. The tear-off also would allow consumers to pay the debt. The consumer would be able to verbally question the debt’s validity at any time and prompt the collector to have to check its files again.
If the tear-off sheet or any written notice is sent back within 30 days of the initial collection notice, the collector would have to provide a debt report—written information substantiating the debt—back to the consumer. The collector would not be permitted to continue pursuing the debt until that report and verification is sent.
If a consumer disputes the validity of the debt, collectors would have to stop collections until the necessary documentation is checked. Collecting on debt that lacks sufficient evidence would be prohibited. In addition, collectors that come across any specific "warning signs" that the information is inaccurate or incomplete would not be able to collect until they resolve the problem. Collectors also would be required to check documentation of a debt before pursuing action against a consumer in court.
Finally, if a debt collector transfers debt without responding to disputes, the next collector could not try to collect until the dispute is resolved. The proposals under consideration also outline information that collectors would have to send when they transfer the debt to another collector so that a consumer does not have to resubmit this information to the new collector.
Small Business Review Panel. The outline was prepared for an upcoming Small Business Review Panel to gather feedback from small industry players, which is the next step in the rulemaking process. The Dodd-Frank Act directs the CFPB to collect the advice and recommendations of small entities concerning whether the proposals under consideration might increase the cost of credit for small businesses and alternatives to minimize any such increase.
In addition to consulting with small business representatives, the CFPB said it will continue to seek input from the public, consumer groups, industry, and other stakeholders before continuing the rulemaking process.
Debt collection report. The bureau simultaneously released a report on the study of third-party debt collection operations. The CFPB conducted a survey of debt collection firms and vendors in order to better understand the operational costs of debt collection firms, particularly in areas potentially affected by the proposals under consideration. The answers to the survey questions provide material for the CFPB’s consideration of what it would cost collectors of different types to comply with potential new rules.
For more information about the CFPB debt collection proposals, subscribe to the Banking and Finance Law Daily.
Friday, July 29, 2016
Wednesday, July 27, 2016
U.S.-E.U. Joint Financial Regulatory Forum meets to plan future action
By J. Preston Carter, J.D., LL.M.
U.S. and E.U. participants in the Joint Financial Regulatory Forum exchanged views on financial regulatory developments at a recent meeting in Washington, D.C. U.S. participants included staff of the Treasury Department, Federal Reserve Board, Federal Deposit Insurance Corporation, Securities and Exchange Commission, Commodity Futures Trading Commission, and Public Company Accounting Oversight Board (PCAOB). E.U. participants included representatives of the European Commission, European Banking Authority, European Securities and Market Authority (EMSA), and Single Resolution Board.
This was the first meeting of the Forum since Treasury and the European Commission decided on enhancements to the dialogue and changed the name of the organization, formerly known as Financial Markets Regulatory.
Issues discussed by the Forum included:
- Banking. Participants talked about bank capital and liquidity issues, including legislative and rulemaking plans for the net stable funding ratio and the leverage ratio, and next steps in finalizing the international regulatory reform agenda in banking.
- CCP resolution. Attendees discussed central counterparty resolution to identity cross-border considerations.
- OTC derivatives. E.U. and CFTC participants examined the equivalence of U.S. swaps trading platforms under the E.U.’s Markets in Financial Instruments framework. In response to U.S. concerns regarding the E.U.’s delay in issuing rules requiring margin for uncleared derivatives beyond the international deadline of Sept. 1, 2016, the E.U. participants indicated that technical standards will be issued as soon as possible.
- Fund issues. ESMA reported that it is advising the European Commission regarding the extension of the EU Alternative Investment Fund Managers Directive passport to U.S. fund managers. Participants noted recent useful exchanges to help clarify the effect of the Volcker Rule on foreign private funds.
- Insurance. Treasury and the European Commission welcomed the continuation of negotiations for a covered agreement on prudential insurance and re-insurance matters between the United States and the E.U.
- Audit. The PCAOB and European Commission participants acknowledged progress on transatlantic cooperation in audit oversight. Participants also noted continuing efforts to more clearly define approaches to cooperation.
- Date protection. Participants supported continuing data transfers between Europe and the United States for regulatory, supervisory, and enforcement purposes. They agreed that authorities’ need for timely and complete access to information is critical for regulatory oversight and effective investigation and prosecution of misconduct. Both sides acknowledged the importance of continuing these discussions.
- G-20 financial regulatory reforms. Finally, participants highlighted their support for G-20 efforts to build a stronger and more resilient financial system, and their continued desire to work with other G-20 members to finalize the remaining core elements of the financial regulatory reform agenda.
The next Forum meeting will take place in Brussels in February 2017.
For more information about U.S.-U.K. financial regulatory reform, subscribe to the Banking and Finance Law Daily.
Tuesday, July 26, 2016
Subsequent debt collectors must give initial communication notices
By Richard Roth
Any debt collector trying to collect a debt must send the consumer the disclosures described by the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Ninth Circuit has decided. If multiple debt collectors attempt collection, each must provide the disclosures either in their initial contact with the consumer or within five days thereafter (Hernandez v. Williams, Zinman & Parham PC).
The FDCPA says that “Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall . . . send the consumer a written notice” that tells the consumer of her right to demand that the debt be fully described and validated (15 U.S.C. §1692g(a)). These disclosures sometimes are called the “validation notice.” Including the validation notice in the initial communication is permitted, and is the normal tactic.
According to the court, the consumer fell behind in her payments on an automobile loan. Debt collector Thunderbird Collection Specialists sent the consumer a dunning letter that she apparently ignored. Williams, Zinman & Parham, a law firm, then wrote the consumer to demand payment on behalf of its client, Thunderbird. Thunderbird’s letter apparently included the validation notice, but the consumer claimed that the notice in WZP’s letter was deficient. She sued the firm for not providing a complete validation notice within five days of its initial communication with her.
Who must give the notice? The essential issue was the meaning of “the initial communication.” WZP claimed that, for any debt, there could be only one initial communication, no matter how many debt collectors became involved. The consumer claimed that the initial communication was the first communication from each debt collector that was involved.
According to the court, this was a case of first impression in the appellate courts, as no U.S. Court of Appeals had previously issued a published opinion. After interpreting the phrase in light of the entire act, including the act’s intent, the court determined that each debt collector must provide the validation notice.
Ambiguous phrase. “The initial communication” was ambiguous, the court began. The FDCPA did not define “initial,” and the interpretations advocated by both sides were rational.
On the one hand, using “the initial communication,” rather than “an initial communication,” implied there could be only one, the court said. On the other hand, using “a debt collector” implied an obligation that applied to all debt collectors.
Since the text of the FDCPA was not definitive, a broader view of the act was required.
The broader view. Elsewhere in the FDCPA, “a debt collector” applied to all debt collectors that participated in the collection process, the court said. Also, the statute’s definition of “debt collector” covered all collectors, not just the first in line. WZP’s arguments to the contrary, based on comparisons to other specific language in the act, did not persuade the court differently.
For one thing, accepting WZP’s argument would create a loophole that would undermine the act’s requirement that a debt collector had to stop its collection efforts until it satisfied a consumer’s demand for verification. A debt collector could evade the pause requirement by passing the debt to a second debt collector that would not be required to provide the validation notice, the court pointed out.
The consumer-friendly interpretation also was more consistent with the FDCPA’s goal of protecting consumers from abusive collection practices, the court pointed out. Since information about a debt, or about a dispute of that debt, can be lost each time the debt is sold, it is important that consumers retain all of their validation and dispute rights.
For more information about debt collections, subscribe to the Banking and Finance Law Daily.
Any debt collector trying to collect a debt must send the consumer the disclosures described by the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Ninth Circuit has decided. If multiple debt collectors attempt collection, each must provide the disclosures either in their initial contact with the consumer or within five days thereafter (Hernandez v. Williams, Zinman & Parham PC).
The FDCPA says that “Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall . . . send the consumer a written notice” that tells the consumer of her right to demand that the debt be fully described and validated (15 U.S.C. §1692g(a)). These disclosures sometimes are called the “validation notice.” Including the validation notice in the initial communication is permitted, and is the normal tactic.
According to the court, the consumer fell behind in her payments on an automobile loan. Debt collector Thunderbird Collection Specialists sent the consumer a dunning letter that she apparently ignored. Williams, Zinman & Parham, a law firm, then wrote the consumer to demand payment on behalf of its client, Thunderbird. Thunderbird’s letter apparently included the validation notice, but the consumer claimed that the notice in WZP’s letter was deficient. She sued the firm for not providing a complete validation notice within five days of its initial communication with her.
Who must give the notice? The essential issue was the meaning of “the initial communication.” WZP claimed that, for any debt, there could be only one initial communication, no matter how many debt collectors became involved. The consumer claimed that the initial communication was the first communication from each debt collector that was involved.
According to the court, this was a case of first impression in the appellate courts, as no U.S. Court of Appeals had previously issued a published opinion. After interpreting the phrase in light of the entire act, including the act’s intent, the court determined that each debt collector must provide the validation notice.
Ambiguous phrase. “The initial communication” was ambiguous, the court began. The FDCPA did not define “initial,” and the interpretations advocated by both sides were rational.
On the one hand, using “the initial communication,” rather than “an initial communication,” implied there could be only one, the court said. On the other hand, using “a debt collector” implied an obligation that applied to all debt collectors.
Since the text of the FDCPA was not definitive, a broader view of the act was required.
The broader view. Elsewhere in the FDCPA, “a debt collector” applied to all debt collectors that participated in the collection process, the court said. Also, the statute’s definition of “debt collector” covered all collectors, not just the first in line. WZP’s arguments to the contrary, based on comparisons to other specific language in the act, did not persuade the court differently.
For one thing, accepting WZP’s argument would create a loophole that would undermine the act’s requirement that a debt collector had to stop its collection efforts until it satisfied a consumer’s demand for verification. A debt collector could evade the pause requirement by passing the debt to a second debt collector that would not be required to provide the validation notice, the court pointed out.
The consumer-friendly interpretation also was more consistent with the FDCPA’s goal of protecting consumers from abusive collection practices, the court pointed out. Since information about a debt, or about a dispute of that debt, can be lost each time the debt is sold, it is important that consumers retain all of their validation and dispute rights.
For more information about debt collections, subscribe to the Banking and Finance Law Daily.
Thursday, July 21, 2016
CFPB amicus brief argues that inaccurate credit report is ‘concrete’ harm
By Colleen M. Svelnis, J.D.
The Consumer Financial Protection Bureau has filed an amicus curiae brief on behalf of a consumer in a case involving standing under the Fair Credit Reporting Act, arguing that the an inaccurate consumer report published about an individual constitutes concrete harm sufficient to satisfy the injury-in-fact requirement of Article III. The brief was filed in the case of Robins v. Spokeo, Inc. Robins alleges that Spokeo’s website displayed a consumer report about him that included inaccurate information while he was "out of work and seeking employment."
The FCRA requires that a credit reporting agency "shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates." Under the FCRA, an affected consumer may bring suit against any person who negligently or willfully fails to comply with any requirement imposed under the Act.
Incomplete analysis. The district court found that a mere violation of the FCRA would not confer Article III standing "where no injury in fact is properly pled." However, the Ninth Circuit Court of Appeals found that the FCRA confers statutory rights, and that "the violation of a statutory right is usually a sufficient injury in fact to confer standing." The Ninth Circuit concluded that Robins satisfies the requirements and that the "alleged violations of Robins’s statutory rights are sufficient to satisfy the injury-in-fact requirement of Article III." The Supreme Court vacated that judgment, taking only the position that the Ninth Circuit’s "analysis was incomplete," and remanded for further proceedings. The court must also consider that the injury-in-fact requirement requires a plaintiff to allege an injury that is both "concrete and particularized."
‘Concrete’ harm requirement. In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Supreme Court determined that the U.S. Court of Appeals for the Ninth Circuit’s analysis of the standing to sue issue was insufficient because the appellate court did not consider whether the consumer had outlined a concrete injury that would give him standing under the U.S. Constitution
CFPB brief. The brief argues that publication of false, material information in Robins’ consumer report is a concrete harm supporting his standing to sue. Consumer reports contain information that influences employers’ and other persons’ decisions about the individual, and the "additional harms that may result from an inaccurate report" like losing a job or a loan, could be "difficult to prove or measure," according to the bureau’s brief.
According to the brief, Spokeo reaffirms that "intangible" injuries, including exposure to a "risk of real harm," can satisfy Article III’s concrete injury requirement. The brief points to Congress’ action in putting forth the FCRA, which sought to curb the "dissemination of false information" in consumer reports. Further, the brief states that it was "eminently reasonable" for Congress to "regard the dissemination of an inaccurate consumer report as an injury to the individual whom the report inaccurately describes."
In addition to Congressional action, the brief argues that historical practice indicates that publication of false consumer report information is a sufficiently concrete injury to satisfy Article III.
For more information about CFPB amicus briefs, subscribe to the Banking and Finance Law Daily.
The Consumer Financial Protection Bureau has filed an amicus curiae brief on behalf of a consumer in a case involving standing under the Fair Credit Reporting Act, arguing that the an inaccurate consumer report published about an individual constitutes concrete harm sufficient to satisfy the injury-in-fact requirement of Article III. The brief was filed in the case of Robins v. Spokeo, Inc. Robins alleges that Spokeo’s website displayed a consumer report about him that included inaccurate information while he was "out of work and seeking employment."
The FCRA requires that a credit reporting agency "shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates." Under the FCRA, an affected consumer may bring suit against any person who negligently or willfully fails to comply with any requirement imposed under the Act.
Incomplete analysis. The district court found that a mere violation of the FCRA would not confer Article III standing "where no injury in fact is properly pled." However, the Ninth Circuit Court of Appeals found that the FCRA confers statutory rights, and that "the violation of a statutory right is usually a sufficient injury in fact to confer standing." The Ninth Circuit concluded that Robins satisfies the requirements and that the "alleged violations of Robins’s statutory rights are sufficient to satisfy the injury-in-fact requirement of Article III." The Supreme Court vacated that judgment, taking only the position that the Ninth Circuit’s "analysis was incomplete," and remanded for further proceedings. The court must also consider that the injury-in-fact requirement requires a plaintiff to allege an injury that is both "concrete and particularized."
‘Concrete’ harm requirement. In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Supreme Court determined that the U.S. Court of Appeals for the Ninth Circuit’s analysis of the standing to sue issue was insufficient because the appellate court did not consider whether the consumer had outlined a concrete injury that would give him standing under the U.S. Constitution
CFPB brief. The brief argues that publication of false, material information in Robins’ consumer report is a concrete harm supporting his standing to sue. Consumer reports contain information that influences employers’ and other persons’ decisions about the individual, and the "additional harms that may result from an inaccurate report" like losing a job or a loan, could be "difficult to prove or measure," according to the bureau’s brief.
According to the brief, Spokeo reaffirms that "intangible" injuries, including exposure to a "risk of real harm," can satisfy Article III’s concrete injury requirement. The brief points to Congress’ action in putting forth the FCRA, which sought to curb the "dissemination of false information" in consumer reports. Further, the brief states that it was "eminently reasonable" for Congress to "regard the dissemination of an inaccurate consumer report as an injury to the individual whom the report inaccurately describes."
In addition to Congressional action, the brief argues that historical practice indicates that publication of false consumer report information is a sufficiently concrete injury to satisfy Article III.
For more information about CFPB amicus briefs, subscribe to the Banking and Finance Law Daily.
Wednesday, July 20, 2016
Report seeks to dispel FinTech’s ‘un-level playing field’
By John M. Pachkowski, J.D.
Financial Innovation Now, a public policy coalition comprised of Amazon, Apple, Google, Intuit, and PayPal, has released a report detailing the current state and federal regulatory compliance requirements for new marketplace innovators in financial services.
The report entitled "Examining the Extensive Regulation of Financial Technologies" summarized the regulatory environment for two new categories of financial services: online lending and emerging payments technologies. Specifically, the report examined the types of regulations that two hypothetical innovators—a payments security technology and an alternative small business lending service—face in providing their services. The report also provides an overview of the comprehensive regulatory scheme covering data security as well as the laws governing consumer protection and anti-money laundering that apply to these new entrants.
Although it has been argued that new technologically advanced services somehow face fewer regulations and unfairly benefit from an unlevel playing field, the report concluded, "If anything, the regulatory playing field is heavily tilted against new entrants." It added, "Like banks, these companies are heavily regulated within their respective business lines. They are, in fact, subject to the same regulations as banks and are subject to extensive oversight by government agencies, bank customers, card brands and their insurance companies."
For more information about FinTech, subscribe to the Banking and Finance Law Daily.
Financial Innovation Now, a public policy coalition comprised of Amazon, Apple, Google, Intuit, and PayPal, has released a report detailing the current state and federal regulatory compliance requirements for new marketplace innovators in financial services.
The report entitled "Examining the Extensive Regulation of Financial Technologies" summarized the regulatory environment for two new categories of financial services: online lending and emerging payments technologies. Specifically, the report examined the types of regulations that two hypothetical innovators—a payments security technology and an alternative small business lending service—face in providing their services. The report also provides an overview of the comprehensive regulatory scheme covering data security as well as the laws governing consumer protection and anti-money laundering that apply to these new entrants.
Although it has been argued that new technologically advanced services somehow face fewer regulations and unfairly benefit from an unlevel playing field, the report concluded, "If anything, the regulatory playing field is heavily tilted against new entrants." It added, "Like banks, these companies are heavily regulated within their respective business lines. They are, in fact, subject to the same regulations as banks and are subject to extensive oversight by government agencies, bank customers, card brands and their insurance companies."
For more information about FinTech, subscribe to the Banking and Finance Law Daily.
Tuesday, July 19, 2016
What does first report on Enterprises’ sales of non-performing loans reveal?
By Thomas G. Wolfe, J.D.
The Federal Housing Finance Agency (FHFA) issued its first report on the sales of non-performing loans by the government-sponsored enterprises—Fannie Mae and Freddie Mac. As articulated by FHFA Director Melvin Watt in a recent release, “This report reflects the first available results since the Enterprises started to sell NPLs [non-performing loans] and since we put in place enhanced requirements for servicing these loans.” According to Watt, the report demonstrates the FHFA’s “commitment to transparency” as the agency works to “achieve more favorable outcomes for borrowers and for the Enterprises by providing alternatives to foreclosure whenever possible.”
As observed by the FHFA’s “Enterprise Non-Performance Loan Sales Report,” non-performing loan sales reduce the number of severely delinquent loans in the Enterprises’ portfolios. Moreover, the rules are subject to FHFA requirements that “encourage NPL buyers to prioritize outcomes for borrowers other than foreclosure.”
The Federal Housing Finance Agency (FHFA) issued its first report on the sales of non-performing loans by the government-sponsored enterprises—Fannie Mae and Freddie Mac. As articulated by FHFA Director Melvin Watt in a recent release, “This report reflects the first available results since the Enterprises started to sell NPLs [non-performing loans] and since we put in place enhanced requirements for servicing these loans.” According to Watt, the report demonstrates the FHFA’s “commitment to transparency” as the agency works to “achieve more favorable outcomes for borrowers and for the Enterprises by providing alternatives to foreclosure whenever possible.”
As observed by the FHFA’s “Enterprise Non-Performance Loan Sales Report,” non-performing loan sales reduce the number of severely delinquent loans in the Enterprises’ portfolios. Moreover, the rules are subject to FHFA requirements that “encourage NPL buyers to prioritize outcomes for borrowers other than foreclosure.”
Report highlights. The FHFA’s report reviews available data on NPL sales by Fannie Mae and Freddie Mac through May 31, 2016, and preliminary outcomes for borrowers through Dec. 31, 2015. Among other things, the FHFA’s first report on the sales of NPLs by the Enterprises indicates that:
- the Enterprises have sold over 41,600 NPLs with a total unpaid principal balance of $8.5 billion through the end of May 2016;
- New Jersey, Florida, and New York accounted for nearly half of the NPLs sold;
- the NPLs had an average delinquency of 3.4 years and an average current loan-to-value ratio of 98 percent;
- a nonprofit organization, Community Loan Fund of New Jersey, was the “winning bidder on five of six small, geographically concentrated pools” sold by Fannie Mae and Freddie Mac through May 2016 and is a service provider for the sixth pool;
- NPLs where the home is occupied by the borrower had a higher rate of foreclosure avoidance than for vacant properties;
- generally, the FHFA believes that foreclosure of vacant homes can “improve neighborhood stability and reduce blight” as the homes are sold or rented to new occupants; and
- only 24 percent of the 8,849 NPLs have been resolved to date, with half of those being resolved without foreclosure and half being resolved through foreclosure.
For more information about the FHFA and the government-sponsored enterprises, subscribe to the Banking and Finance Law Daily.
Thursday, July 14, 2016
BancorpSouth to pay $10.6M under mortgage lending discrimination settlement
By Andrew A. Turner, J.D.
The Consumer Financial Protection Bureau and the Justice Department have settled claims against BancorpSouth Bank to resolve allegations that discriminatory mortgage lending practices harmed African Americans and other minorities. The settlement, which is subject to court approval, provides over $10 million in monetary relief including loan subsidies and compensation for alleged victims. The investigation was the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination.
The joint complaint filed by the CPFB and DOJ alleges that BancorpSouth engaged in numerous discriminatory practices, including: illegally redlining in Memphis; denying certain African Americans mortgage loans more often than similarly situated non-Hispanic white applicants; charging African-American customers for certain mortgage loans more than non-Hispanic white borrowers with similar loan qualifications; and implementing an explicitly discriminatory loan denial policy.
“BancorpSouth’s discrimination throughout the mortgage lending process harmed the people who were overcharged or denied their dream of homeownership based on their race, and it harmed the Memphis minority neighborhoods that were redlined and denied equal access to affordable credit,” said CFPB Director Richard Cordray. The director stated that the action against BancorpSouth is a reminder that redlining and overt discrimination are not yet remnants of the past, and that federal enforcement is needed to bring real relief to communities and individuals.”
The CFPB said that it sent “undercover testers” to several BancorpSouth branches to ask about getting a mortgage loan. The testers found that BancorpSouth employees treated African-American testers worse than they treated white testers with similar credit qualifications.
Under the terms of the proposed settlement, BancorpSouth will invest $4 million in a loan subsidy fund to increase the amount of credit the bank extends to majority minority neighborhoods in the Memphis Metropolitan Statistical Area. In order to make residential mortgage loans available to residents of minority neighborhoods that were not adequately served by BancorpSouth, the bank will further invest at least $800,000 in advertising, outreach and community partnership efforts and open a new full-service branch or loan processing office in a predominantly minority neighborhood.
To compensate borrowers harmed by its discriminatory pricing and underwriting policies and practices, BancorpSouth will establish a $2.78 million settlement fund and extend credit offers to unlawfully denied applicants. The settlement will also require BancorpSouth to amend its pricing and underwriting policies; further develop strong internal standards to ensure compliance with fair lending obligations; and provide fair lending training to its employees, senior management and board of directors. The bank must also pay a $3 million civil money penalty to the CFPB.
For more information about discrimination in lending, subscribe to the Banking and Finance Law Daily.
The Consumer Financial Protection Bureau and the Justice Department have settled claims against BancorpSouth Bank to resolve allegations that discriminatory mortgage lending practices harmed African Americans and other minorities. The settlement, which is subject to court approval, provides over $10 million in monetary relief including loan subsidies and compensation for alleged victims. The investigation was the CFPB’s first use of testing, sometimes referred to as “mystery shopping,” to support an allegation of discrimination.
The joint complaint filed by the CPFB and DOJ alleges that BancorpSouth engaged in numerous discriminatory practices, including: illegally redlining in Memphis; denying certain African Americans mortgage loans more often than similarly situated non-Hispanic white applicants; charging African-American customers for certain mortgage loans more than non-Hispanic white borrowers with similar loan qualifications; and implementing an explicitly discriminatory loan denial policy.
“BancorpSouth’s discrimination throughout the mortgage lending process harmed the people who were overcharged or denied their dream of homeownership based on their race, and it harmed the Memphis minority neighborhoods that were redlined and denied equal access to affordable credit,” said CFPB Director Richard Cordray. The director stated that the action against BancorpSouth is a reminder that redlining and overt discrimination are not yet remnants of the past, and that federal enforcement is needed to bring real relief to communities and individuals.”
The CFPB said that it sent “undercover testers” to several BancorpSouth branches to ask about getting a mortgage loan. The testers found that BancorpSouth employees treated African-American testers worse than they treated white testers with similar credit qualifications.
Under the terms of the proposed settlement, BancorpSouth will invest $4 million in a loan subsidy fund to increase the amount of credit the bank extends to majority minority neighborhoods in the Memphis Metropolitan Statistical Area. In order to make residential mortgage loans available to residents of minority neighborhoods that were not adequately served by BancorpSouth, the bank will further invest at least $800,000 in advertising, outreach and community partnership efforts and open a new full-service branch or loan processing office in a predominantly minority neighborhood.
To compensate borrowers harmed by its discriminatory pricing and underwriting policies and practices, BancorpSouth will establish a $2.78 million settlement fund and extend credit offers to unlawfully denied applicants. The settlement will also require BancorpSouth to amend its pricing and underwriting policies; further develop strong internal standards to ensure compliance with fair lending obligations; and provide fair lending training to its employees, senior management and board of directors. The bank must also pay a $3 million civil money penalty to the CFPB.
For more information about discrimination in lending, subscribe to the Banking and Finance Law Daily.
Wednesday, July 13, 2016
Senators urge Watt to leave housing finance reform to Congress
By J. Preston Carter, J.D., LL.M.
Several senators sent a letter to Federal Housing Finance Agency Director Mel Watt urging him to avoid taking steps that might help the release of government sponsored enterprises—Fannie Mae and Freddie Mac—from conservatorship without comprehensive reform. The letter requests that, as Congress "looks to reengage on the issue in the coming months," Watt continues to take "incremental steps" regarding housing finance reform.
In their letter, Sens. Bob Corker (R-Tenn), Mike Crapo (R-Idaho), Heidi Heitkamp (D-ND), Dean Heller (R-Nev), Jon Tester (D-Mont), and Mark Warner (D-Va) said that "the pre-crisis GSE model came with a laundry list of government-provided benefits that gave the GSEs a competitive advantage in the market and put taxpayers at risk."
According to the senators, the benefits "facilitate a government-backed duopoly that led to excessive risk-taking and cost taxpayers and the economy dearly." They said that "changes will be needed to the existing structure," which "should come through housing finance reform legislation, not unilateral action by this or any future Administration."
In a press release, Corker said that housing finance reform remains the last major piece of unfinished business of the financial crisis. "[R]ecapping and releasing Fannie and Freddie without reform would keep taxpayers on the hook for future bailouts," he continued. "It is my hope that Director Watt will avoid any measures that would hinder the ability to pass bipartisan reform legislation in the future."
For more information about housing finance reform, subscribe to the Banking and Finance Law Daily.
Several senators sent a letter to Federal Housing Finance Agency Director Mel Watt urging him to avoid taking steps that might help the release of government sponsored enterprises—Fannie Mae and Freddie Mac—from conservatorship without comprehensive reform. The letter requests that, as Congress "looks to reengage on the issue in the coming months," Watt continues to take "incremental steps" regarding housing finance reform.
In their letter, Sens. Bob Corker (R-Tenn), Mike Crapo (R-Idaho), Heidi Heitkamp (D-ND), Dean Heller (R-Nev), Jon Tester (D-Mont), and Mark Warner (D-Va) said that "the pre-crisis GSE model came with a laundry list of government-provided benefits that gave the GSEs a competitive advantage in the market and put taxpayers at risk."
According to the senators, the benefits "facilitate a government-backed duopoly that led to excessive risk-taking and cost taxpayers and the economy dearly." They said that "changes will be needed to the existing structure," which "should come through housing finance reform legislation, not unilateral action by this or any future Administration."
In a press release, Corker said that housing finance reform remains the last major piece of unfinished business of the financial crisis. "[R]ecapping and releasing Fannie and Freddie without reform would keep taxpayers on the hook for future bailouts," he continued. "It is my hope that Director Watt will avoid any measures that would hinder the ability to pass bipartisan reform legislation in the future."
For more information about housing finance reform, subscribe to the Banking and Finance Law Daily.
Tuesday, July 12, 2016
Junk debt buyer reinvestigating debt needed to seek additional information
By Richard A. Roth
A debt collector that bought charged-off debts for collection purposes could not respond to a consumer’s dispute by simply rechecking the limited information in the electronic file it purchased, the U.S. Court of Appeals for the Eleventh Circuit has decided. While what constitutes a “reasonable investigation” of a consumer’s dispute will vary depending on the circumstances, concluding that a debt was verified without looking at any account-level information or documentation or verifying the electronic file contents in some other manner could not be considered to be reasonable, the court said (Hinkle v. Midland Credit Management, Inc.).
The decision has the potential to impose higher Fair Credit Reporting Act compliance burdens on debt buyers when consumers dispute entries in their consumer reports.
Junk debt purchases. Midland Credit Management bought two charged-off debts from other debt collectors, receiving only electronic files that gave the amount of the debt, original creditor’s name, charge-off date, and personal information about the account-holder. In neither case did Midland receive any account-level documentation, but in both cases the debt seller had at least some obligation to help Midland obtain that documentation if it was requested. Charged-off debts that may be sold from one debt buyer to another, usually at increasing discounts, sometimes are referred to as “junk debts,” the court noted.
Consumer’s disputes. The company sent separate dunning letters for each of the debts, with each letter offering a settlement for less than the full amount claimed. The first settlement offer apparently was accepted, as Midland marked the account “paid in full” and stopped reporting it to consumer reporting agencies. However, the consumer said she hadn't received the letter and hadn't made any payment.
In fact, the consumer claimed that she knew nothing about the account or the settlement until she obtained a copy of her credit report several years later and saw that the report listed the debt as having previously been in collection. She disputed the debt with the national consumer reporting agencies, which passed the dispute to Midland for reinvestigation.
Not long after, Midland sent a collection letter for the second debt, which the consumer acknowledged having received. In a subsequent telephone conversation, she told Midland that she had not opened the account in question and did not owe the debt. Midland, by letter, asked the consumer for any documentation she could provide to support her dispute but, according to the court, did nothing else.
Six months later, the consumer disputed the second debt with the three CRAs, which again referred the dispute to Midland for reinvestigation. The court said that Midland never took any steps to investigate either dispute beyond, at most, reviewing the electronic files it had purchased and asking the consumer if she could supply any more information. Specifically, it never invoked its ability to ask the sellers for help in obtaining account-level information.
Reasonable reinvestigation. The Fair Credit Reporting Act requires a company that furnishes information to CRAs to perform a reasonable reinvestigation if it is told a consumer has disputed that information (15 U.S.C. §1681i). According to the appellate court, what Midland did wasn’t enough to be considered reasonable.
What constitutes a reasonable reinvestigation depends in part on who the information furnisher is—the original creditor, the creditor’s collection agency, a debt buyer, or a “down-the-line” debt buyer like Midland, the court said. Under the FCRA, there are three possible ends of a reinvestigation—the debt claim could be found to be verified, the debt claim could be found to be inaccurate, or the information could be inadequate to reach a conclusion.
The statute does not define either “verify” or “investigation,” the court noted. However, in this context, “verify” calls for “some degree of careful inquiry.” If Midland did not have information showing that the contents of the electronic files were accurate, it should have obtained such information before reporting the debt was verified.
An information furnisher, including a junk-debt buyer, has two choices, the court said:
Shifting the burden. The court also rejected Midland’s argument that its suggestion the consumer should furnish information to support her claim could effectively shift the burden to her and, if she did nothing, allow it to report the debt as verified. Nothing in the FCRA allowed Midland to shift the burden of its investigation to the consumer. Moreover, even if doing so was possible, Midland at least would have had to tell the consumer that additional information was required, not just that it would be “helpful.”
A debt collector that bought charged-off debts for collection purposes could not respond to a consumer’s dispute by simply rechecking the limited information in the electronic file it purchased, the U.S. Court of Appeals for the Eleventh Circuit has decided. While what constitutes a “reasonable investigation” of a consumer’s dispute will vary depending on the circumstances, concluding that a debt was verified without looking at any account-level information or documentation or verifying the electronic file contents in some other manner could not be considered to be reasonable, the court said (Hinkle v. Midland Credit Management, Inc.).
The decision has the potential to impose higher Fair Credit Reporting Act compliance burdens on debt buyers when consumers dispute entries in their consumer reports.
Junk debt purchases. Midland Credit Management bought two charged-off debts from other debt collectors, receiving only electronic files that gave the amount of the debt, original creditor’s name, charge-off date, and personal information about the account-holder. In neither case did Midland receive any account-level documentation, but in both cases the debt seller had at least some obligation to help Midland obtain that documentation if it was requested. Charged-off debts that may be sold from one debt buyer to another, usually at increasing discounts, sometimes are referred to as “junk debts,” the court noted.
Consumer’s disputes. The company sent separate dunning letters for each of the debts, with each letter offering a settlement for less than the full amount claimed. The first settlement offer apparently was accepted, as Midland marked the account “paid in full” and stopped reporting it to consumer reporting agencies. However, the consumer said she hadn't received the letter and hadn't made any payment.
In fact, the consumer claimed that she knew nothing about the account or the settlement until she obtained a copy of her credit report several years later and saw that the report listed the debt as having previously been in collection. She disputed the debt with the national consumer reporting agencies, which passed the dispute to Midland for reinvestigation.
Not long after, Midland sent a collection letter for the second debt, which the consumer acknowledged having received. In a subsequent telephone conversation, she told Midland that she had not opened the account in question and did not owe the debt. Midland, by letter, asked the consumer for any documentation she could provide to support her dispute but, according to the court, did nothing else.
Six months later, the consumer disputed the second debt with the three CRAs, which again referred the dispute to Midland for reinvestigation. The court said that Midland never took any steps to investigate either dispute beyond, at most, reviewing the electronic files it had purchased and asking the consumer if she could supply any more information. Specifically, it never invoked its ability to ask the sellers for help in obtaining account-level information.
Reasonable reinvestigation. The Fair Credit Reporting Act requires a company that furnishes information to CRAs to perform a reasonable reinvestigation if it is told a consumer has disputed that information (15 U.S.C. §1681i). According to the appellate court, what Midland did wasn’t enough to be considered reasonable.
What constitutes a reasonable reinvestigation depends in part on who the information furnisher is—the original creditor, the creditor’s collection agency, a debt buyer, or a “down-the-line” debt buyer like Midland, the court said. Under the FCRA, there are three possible ends of a reinvestigation—the debt claim could be found to be verified, the debt claim could be found to be inaccurate, or the information could be inadequate to reach a conclusion.
The statute does not define either “verify” or “investigation,” the court noted. However, in this context, “verify” calls for “some degree of careful inquiry.” If Midland did not have information showing that the contents of the electronic files were accurate, it should have obtained such information before reporting the debt was verified.
An information furnisher, including a junk-debt buyer, has two choices, the court said:
- It could verify the information it had reported through documentary evidence or some individual’s personal knowledge.
- If the necessary evidence was not available or would be “too burdensome to acquire,” it could report that the information it had reported could not be verified.
Shifting the burden. The court also rejected Midland’s argument that its suggestion the consumer should furnish information to support her claim could effectively shift the burden to her and, if she did nothing, allow it to report the debt as verified. Nothing in the FCRA allowed Midland to shift the burden of its investigation to the consumer. Moreover, even if doing so was possible, Midland at least would have had to tell the consumer that additional information was required, not just that it would be “helpful.”
For more information about credit reporting requirements, subscribe to the Banking and Finance Law Daily.
Monday, July 11, 2016
Reactions to Financial CHOICE Act continue to mount
By Stephanie K. Mann, J.D.
In the wake of the introduction of the Financial CHOICE Act, multiple trade associations have taken the opportunity to respond to the proposed bill. Fifteen national conservative organizations and prominent activists have announced that they “wholeheartedly endorse” the Financial CHOICE Act, saying the Republican plan to replace the failed Dodd-Frank Act will “turbocharge the American economy.” In a letter released by the Financial Services Committee, the conservative organizations highlighted key features of the Financial CHOICE Act in their endorsement, noting the Republican plan will end taxpayer-funded bailouts for “too big to fail” banks, demand accountability from financial regulators, and “end the crony debit card price control scheme.”
“If we want the economy to improve—if we want to give all Americans the chance to prosper again—we need to put an end to Washington’s destructive regulatory agenda once and for all,” said the trade associations. “The Financial CHOICE Act aims to curb regulations to create opportunity and choice for investors, consumers, and entrepreneurs nationwide.”
The letter specifically addressed the following aspects of the CHOICE Act:
“The reforms in the law have benefited American consumers, merchants, small financial institutions and the economy as a whole. Repealing or weakening the law will only benefit fewer than two percent of the country’s largest banks and remove any and all competition from the debit routing market,” notes the letter. These reforms, added the trade associations, brought transparency—for the first time small businesses can see and know exactly how much they will be charged for a debit transaction from one of the covered institutions—and a level of competition into a market where fees were traditionally set collectively behind closed doors and without regard to the costs imposed on American consumers and retailers.
Contrary to opponents’ arguments, said the letter, debit reforms are working and Congress should strengthen them or “address the excessive and hidden credit card fees American consumers and merchants pay every year.” Since the Durbin Amendment was adopted, the cost of accepting debit has decreased 44 percent, according to bank self-reported data. And yet, by becoming more efficient, the largest issuers are now collecting a profit of almost 500 percent on a debit transaction currently under the cap. This demonstrates that the Durbin Amendment is working and that competition and transparency have only strengthened the marketplace.
The letter concluded by urging House leadership to oppose the Financial CHOICE Act and encouraging all members of Congress to do the same.
It can only be expected that as more time passes, the arguments in relation to the Financial CHOICE Act will only become more divisive.
For more information about the Financial CHOICE Act, subscribe to the Banking and Finance Law Daily.
In the wake of the introduction of the Financial CHOICE Act, multiple trade associations have taken the opportunity to respond to the proposed bill. Fifteen national conservative organizations and prominent activists have announced that they “wholeheartedly endorse” the Financial CHOICE Act, saying the Republican plan to replace the failed Dodd-Frank Act will “turbocharge the American economy.” In a letter released by the Financial Services Committee, the conservative organizations highlighted key features of the Financial CHOICE Act in their endorsement, noting the Republican plan will end taxpayer-funded bailouts for “too big to fail” banks, demand accountability from financial regulators, and “end the crony debit card price control scheme.”
“If we want the economy to improve—if we want to give all Americans the chance to prosper again—we need to put an end to Washington’s destructive regulatory agenda once and for all,” said the trade associations. “The Financial CHOICE Act aims to curb regulations to create opportunity and choice for investors, consumers, and entrepreneurs nationwide.”
The letter specifically addressed the following aspects of the CHOICE Act:
- Orderly Liquidation Authority—the CHOICE Act would require every financial regulation to pass a cost-benefit analysis before enactment by replacing the Dodd-Frank’s Orderly Liquidation Authority with a newly updated subchapter of the Bankruptcy Code.
- Durbin Amendment—the repeal of this provision from the Dodd-Frank Act would end the “crony debit card price control scheme.” According to the letter, the Durbin Amendment imposed price controls and other mandates on debit card transaction fees with the false promise that billions would be passed on to consumers. However, “studies show that many consumers have lost access to free checking and debit card rewards as a result.”
- Consumer Financial Protection Bureau—the Choice Act would replace the single director of the agency with a bipartisan, five-member commission subject to congressional oversight and make the bureau subject to the appropriations process. Currently, said the letter, the CFPB has the ability to “put entire industries out of business with the snap of its fingers,” and its unelected director can simply declare financial products “abusive” and outlaw them without congressional approval. The CFPB must be “reined in,” the letter concluded.
“The reforms in the law have benefited American consumers, merchants, small financial institutions and the economy as a whole. Repealing or weakening the law will only benefit fewer than two percent of the country’s largest banks and remove any and all competition from the debit routing market,” notes the letter. These reforms, added the trade associations, brought transparency—for the first time small businesses can see and know exactly how much they will be charged for a debit transaction from one of the covered institutions—and a level of competition into a market where fees were traditionally set collectively behind closed doors and without regard to the costs imposed on American consumers and retailers.
Contrary to opponents’ arguments, said the letter, debit reforms are working and Congress should strengthen them or “address the excessive and hidden credit card fees American consumers and merchants pay every year.” Since the Durbin Amendment was adopted, the cost of accepting debit has decreased 44 percent, according to bank self-reported data. And yet, by becoming more efficient, the largest issuers are now collecting a profit of almost 500 percent on a debit transaction currently under the cap. This demonstrates that the Durbin Amendment is working and that competition and transparency have only strengthened the marketplace.
The letter concluded by urging House leadership to oppose the Financial CHOICE Act and encouraging all members of Congress to do the same.
It can only be expected that as more time passes, the arguments in relation to the Financial CHOICE Act will only become more divisive.
For more information about the Financial CHOICE Act, subscribe to the Banking and Finance Law Daily.
Thursday, July 7, 2016
CFPB Supervisory Highlights targets ‘violations of the law and slipshod practices’
By Katalina M. Bianco, J.D.
The latest Consumer Financial Protection Bureau Supervisory Highlights (Issue 12, Summer 2016) reveals that bureau supervisory actions in the first four months of the year uncovered illegal activities in auto finance and payments that led to approximately $24.5 million in restitution to more than 257,000 consumers. The report also spotlights issues CFPB examiners found through the examination of businesses in auto loan origination, debt collection, mortgage origination, and small-dollar lending. The report covers activities completed generally between January 2016 and April 2016.
"This report highlights our ongoing work to address violations of the law and slipshod practices that endanger consumers," said CFPB Director Richard Cordray. "The Bureau’s supervisors continue to perform more and better oversight of these financial markets, and their report gives the industry an opportunity to reflect on their practices before consumers are made to suffer harm."
Examination findings. The CFPB notes that the bureau often finds problems during supervisory examinations that are resolved without enforcement activity. Recent non-public supervisory actions resulted in restitution of about $24.5 million to more than 257,000 consumers for auto finance and payments issues. Issues with debt sales spurred an enforcement action that returned nearly $5 million to consumers and imposed $3 million in civil money penalties.
As reported, CFPB examiners uncovered issues across a number of financial markets, including:
The latest Consumer Financial Protection Bureau Supervisory Highlights (Issue 12, Summer 2016) reveals that bureau supervisory actions in the first four months of the year uncovered illegal activities in auto finance and payments that led to approximately $24.5 million in restitution to more than 257,000 consumers. The report also spotlights issues CFPB examiners found through the examination of businesses in auto loan origination, debt collection, mortgage origination, and small-dollar lending. The report covers activities completed generally between January 2016 and April 2016.
"This report highlights our ongoing work to address violations of the law and slipshod practices that endanger consumers," said CFPB Director Richard Cordray. "The Bureau’s supervisors continue to perform more and better oversight of these financial markets, and their report gives the industry an opportunity to reflect on their practices before consumers are made to suffer harm."
Examination findings. The CFPB notes that the bureau often finds problems during supervisory examinations that are resolved without enforcement activity. Recent non-public supervisory actions resulted in restitution of about $24.5 million to more than 257,000 consumers for auto finance and payments issues. Issues with debt sales spurred an enforcement action that returned nearly $5 million to consumers and imposed $3 million in civil money penalties.
As reported, CFPB examiners uncovered issues across a number of financial markets, including:
- deceptive acts and practices by auto lenders, including deception about add-on products and the terms of a loan deferral;
- miscalculation of loan financing amounts in which a consumer pays more in interest in exchange for the lender giving money upfront to offset closing costs;
- failure to accurately disclose the interest on interest-only loans by incorrectly including in the principal balance a portion of the monthly payment amount that was to be applied to fees financed into the principal balance;
- selling of ineligible accounts by and to debt sellers;
- misleading consumers about debt repayment options;
- failing to provide adverse action notices in violation of the Fair Credit Reporting Act; and
- illegally requiring consumers to use affiliated providers of tax services and flood determination in violation of federal law.
Supervision program. The report contains information on developments within the CFPB’s supervision program including the coordination between the bureau and appropriate federal and state bank and nonbank regulators. In addition, a list of guidance published by the CFPB during the covered time period is included in the Supervisory Highlights.
For more information about CFPB supervisory activities, subscribe to the Banking and Finance Law Daily.
Tuesday, July 5, 2016
Should Uniform Residential Loan Application ask borrower’s language preference?
By Thomas G. Wolfe, J.D.
In recent weeks, a debate between trade and consumer groups has unfolded in connection with whether a planned revision of the Uniform Residential Loan Application (URLA) by the Federal Housing Finance Agency and the government-sponsored enterprises—Fannie Mae and Freddie Mac—should include a question about a borrower’s language preference.
The staff of the FHFA, Fannie Mae, and Freddie Mac are expected to finalize the redesign of the URLA in the near future. Two recent letters transmitted to FHFA Director Mel Watt, the first submitted jointly by eight national banking, mortgage, and credit unions and the second submitted by a coalition of 22 consumer, community, and housing organizations, serve to frame the debate and to illuminate the arguments for and against including a language preference query on the URLA form.
Trade groups. In their June 8, 2016, letter to Watt, the American Bankers Association, Consumer Bankers Association, Consumer Mortgage Coalition, Credit Union National Association, Housing Policy Council, Independent Community Bankers of America, Mortgage Bankers Association, and National Association of Federal Credit Unions caution the FHFA that the inclusion of a question on the redesigned URLA form about a borrower’s language preference “raises several serious compliance and legal concerns that strongly weigh against including it on the form or, at the very least, warrant a full vetting through a notice and comment process before its inclusion.”
While the organizations indicate their support for “a range of efforts to ensure that borrowers are well informed during the mortgage process,” they maintain that a question about language preference on the URLA would:
- require lenders to ask borrowers sensitive questions before the “interactions and implications” of other mortgage laws and regulations are understood and addressed;
- create expectations for consumers that cannot be met, particularly since an estimated 350 languages are spoken in the United States;
- provide an “inferior means” of obtaining and analyzing data;
- detract from other, more promising avenues concerning limited English proficiency;
- potentially expose mortgage lenders and pertinent parties to liability;
- increase costs for lenders, servicers, and borrowers alike, and impose new obligations on servicers; and
- require translation services without accompanying, needed government documents and materials.
Consumer groups. In contrast, in its June 23, 2016, letter to Watt, the coalition of consumer, community, and housing organizations urges the FHFA to include a question on the revised URLA that would ask borrowers to indicate their language preference. The coalition emphasizes that the redesign of the URLA form “presents a unique and unprecedented opportunity to take an important first step towards addressing equitable access to the mortgage market for LEP [limited English proficiency] consumers.”
While commending the FHFA, Fannie Mae, and Freddie Mac for the “massive, multi-year undertaking” of redesigning the URLA, the coalition addresses the concerns raised by the industry trade groups. Among other things, the coalition maintains that:
- asking a borrower’s preferred language on the URLA “would not create any new obligation to originate or service in languages other than English,” and, consequently, industry concerns about added costs or providing translation services without agency guidance are not warranted;
- the FHFA’s consideration of a disclaimer, indicating that a borrower’s preference for a non-English language would not guarantee that communications would be in that particular language, “should be sufficient to alleviate much of the concern expressed in the industry letter”;
- because loan originators and servicers need to know what languages their customers speak as “a first step to addressing language access in the mortgage market,” the URLA is the “best possible vehicle” for collecting that language information; and
- since the redesigned URLA will not be implemented until 2018, “there is more than enough time” for regulators to work together to issue guidance to the industry about their concerns regarding “liability under UDAAP and other fair lending statutes” in connection with a borrower’s language preference.
For more information about federal and state regulation of mortgage loans, subscribe to the Banking and Finance Law Daily.
Subscribe to:
Posts (Atom)