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December 2013

From the editors of CCH’s Banking and Finance publications, this update describes significant developments covered in our products in recent reports, as well as product enhancements

Past issues of the Banking and Finance Update can be viewed here.

If you have questions or comments concerning the information provided below, please contact the Banking and Finance Update editor.

Banking & Finance Law Daily

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Consumer Financial Protection Bureau Reporter

CFPB issues integrated RESPA/TILA mortgage disclosures
The Consumer Financial Protection Bureau has adopted a final rule that will change the way consumers obtain information when purchasing a home. Under current law, which has been in place for over 30 years, lenders are required to provide two different disclosure forms to consumers applying for a mortgage: a Good Faith Estimate developed by the Department of Housing and Urban Development and an “early” Truth in Lending disclosure designed by the Federal Reserve Board. The law also has generally required two different forms at or shortly before closing on the loan—HUD-1 and the Fed’s Truth in Lending disclosure. The Loan Estimate replaces HUD’s Good Faith Estimate and the Fed’s “early” Truth in Lending disclosure and is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage for which they are applying. This story appeared in Report 116, Nov. 25, 2013.

CFPB alleges mortgage insurer paid illegal kickbacks to lenders

The Consumer Financial Protection Bureau is alleging that Republic Mortgage Insurance Corporation (RMIC) paid illegal kickbacks to mortgage lenders in exchange for business. The CFPB further alleges that these practices have been prevalent for more than 10 years. The bureau filed a complaint and proposed consent order against RMIC that will require RMIC to pay a $100,000 penalty to the CFPB. The CFPB’s complaint and proposed consent order are reported at ¶200-296.

CFPB guides lenders on HOEPA homeownership counseling as mortgage compliance date looms
The Consumer Financial Protection Bureau is offering guidance related to the bureau’s 2013 final rule on the Home Ownership and Equity Protection Act (HOEPA). The rule implemented a requirement of the Dodd-Frank Act that lenders provide consumers with a list of homeownership counseling organizations. To assist lenders in developing the list, the bureau has issued an interpretive rule and a bulletin. In addition, the CFPB launched a tool intended to help consumers find local housing counseling agencies to answer questions or concerns they may have. The tool includes a HUD list of approved national and regional intermediaries. The guidance and tool are in anticipation of the January 2014 compliance date for the bureau’s 2013 mortgage rules. CFPB Bulletin 2013-13 is reproduced at ¶19-538, and the interpretive rule is at ¶19-539.

CFPB advances in mission to quell unacceptable debt collection practices
The Consumer Financial Protection Bureau is one step closer to a rulemaking that would target issues in the debt collection market that the bureau sees as problematic for consumers. A newly-issued Advance Notice of Proposed Rulemaking (ANPR) seeks input from consumers on a number of debt collection issues, including the “accuracy of information used by debt collectors, how to ensure consumers know their rights, and the communication tactics collectors employ to recover debts,” the bureau said in its announcement. In addition to the ANPR, the CFPB announced that it will begin adding consumer complaints regarding debt collection to its Consumer Complaint Database. The ANPR is at ¶300-175.

CFPB welcomes submission of payday loan complaints
The Consumer Financial Protection Bureau has begun accepting consumer complaints about payday loans. The bureau issued a release making the announcement and put out a call on its blog for consumers to submit complaints beginning Nov. 6, 2013. Payday loans, also known as “cash advances” or “check loans,” are often short-term, small dollar loans, generally for $500 or less. The announcement is at ¶200-290.

CFPB launches remittance transfer rule multimedia campaign
The Consumer Financial Protection has announced that it is launching a nationwide multimedia campaign to inform consumers who send money internationally about new protections that go into effect on Oct. 28, 2013. The protections are contained in the remittance transfer rule that was finalized in January 2013. “Knowing how the new rules protect consumers is critical for those who send money abroad,” said CFPB Director Richard Cordray. “Through clear, upfront information in several languages, this campaign will help educate and empower those consumers who send international money transfers.” Related documents are at ¶41-516 and ¶200-287.

Bureau updates ATR/QM small entity compliance guide
The Consumer Financial Protection Bureau has issued an updated small entity compliance guide on its Ability-to-Repay (ATR)/Qualified Mortgages (QM) rule. The guidance was updated in light of recently finalized changes to the ATR/QM final rule adopted by the bureau on Jan. 10, 2013, and set to take effect on Jan. 10, 2014. The bureau first issued its ATR/QM small entity compliance guide in April 2013 to address the requirements creditors must follow to determine whether loans meet the qualified mortgage requirements and whether they will receive either a safe harbor or rebuttable presumption of compliance with the ability to repay requirements. The CFPB developed the guidance after requests by stakeholders such as the American Bankers Association for assistance in implementing the rule. The purpose of this guide is to provide an easy-to-use summary of the ATR/QM rule. The small entity guide is at ¶24-017.

Federal Banking Law Reporter

Regulators warn banks of risks from deposit advance products
The Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency are issuing guidance outlining supervisory concerns and expectations for financial institutions that choose to offer deposit advance products—short-term loans that have some similarities to payday loans and that raise some of the same concerns. While the regulators emphasize that the guidance was adopted to address concerns about bank safety and soundness, rather than consumer protection, the guidance instructs banks to implement a number of credit underwriting procedures that will protect consumers from what are perceived as abusive practices. The FDIC guidance and OCC guidance are essentially identical.  The guidance is at ¶64-130O.

OCC describes when enforcement calls for consultant
The Office of the Comptroller of the Currency has published a bulletin providing detailed guidance on its use of independent consultants to resolve enforcement actions against the financial institutions it supervises. The guidance covers when a bank might be required to hire an independent consultant, how the OCC will oversee the selection of a consultant, and how the agency will review a consultant’s work. OCC 2013-33 also makes clear that the use of an independent consultant is not a substitute for the bank’s responsibility to take corrective action required by the OCC or the OCC’s authority to supervise that action. The bulletin is at ¶35-653.

Use of law firm’s delinquency letters could be use of false name
A mortgage assignee’s use of a law firm’s delinquency letter service could have made the assignee a debt collector even though it was collecting money owed to it, the U.S. Court of Appeals for the Second Circuit has decided. If the law firm actually did nothing to collect the delinquent mortgages other than mail letters at the request of the assignee, the assignee would have used a false name to collect its own debts, two judges of a three-judge panel said. However, the court rejected the claim that the assignee violated the Truth in Lending Act, saying that TILA applied only to the original lender. Vincent v. The Money Store (2ndCir) is at ¶101-452.

OCC revises guidance on third-party relationships
The Office of the Comptroller of the Currency has replaced its 2001 guidance on how national banks and federal thrifts should manage their relationships with third-party vendors. The OCC said that financial institutions are continuing to expand their use of third parties to perform many functions and added that it is concerned that the quality of risk management is not keeping up with this expansion. The agency put special emphasis on the need to manage the risks that arise from third-party relationships that involve an institution’s critical functions. The notice is at ¶35-522.

Consumer Credit Guide

Debt collector’s settlement offer did not stop accrual of consumer’s attorney fees
Under the federal Fair Debt Collection Practices Act (FDCPA), a defendant debt collector remained liable for a plaintiff consumer’s attorney fees that accrued after the collector offered a settlement that included the maximum available statutory damages and the mandated FDCPA fees and costs incurred by the consumer, but did not include a formal offer of judgment under the Federal Rules of Civil Procedure (Rule 68). In deciding that the federal trial court had not abused its discretion in awarding full attorney fees to the consumer, the U.S. Court of Appeals for the Second Circuit determined that, since the collector’s settlement offer did not completely resolve the case and did not “moot” the underlying dispute, the collector remained liable for any reasonable attorney fees accrued by the consumer during further litigation. This story on the Cabala v. Crowley (2d Cir.) decision appears in Report No. 1181, Nov. 27, 2013.

TILA class action against bank advances but for half of damages requested
In connection with a credit card bank’s effort to dismiss a consumer’s proposed class action, brought under the federal Truth in Lending Act (TILA) and alleging that the bank failed to provide the proper notice of billing rights to cardholders, the U.S. District Court for the Southern District of New York allowed the TILA claim to proceed. At the same time, however, the court granted the bank’s motion to strike the consumer’s request in her complaint for $1 million in statutory damages. While statutory damages would be permitted if the consumer establishes the TILA violation, her damages are subject to a cap of $500,000, not the new $1 million cap established under the Dodd-Frank Act. Zevon v. Department Stores National Bank (S.D.N.Y.), ¶52,543.

Spouse waived ECOA claim over restructured loan guarantee
A bank did not violate the federal Equal Credit Opportunity Act (ECOA) when it required a business owner’s spouse to execute a comprehensive guarantee as a condition of restructuring a loan on which the business had defaulted, according to the U.S. Court of Appeals for the Fourth Circuit. The Fourth Circuit determined that ECOA prevents a lender from requiring a spouse to waive her statutory rights as a condition of extending a new loan but does not apply to the restructuring of an existing loan that is in default. In the court’s view, a waiver given in exchange for a restructured loan benefitted both the lender and the borrower; refusing to enforce such a waiver could hurt borrowers by making lenders less likely to agree to a restructured loan. In addition, the spouse executed the waiver after she consulted with an attorney. Ballard v. Bank of America, N.A. (4th Cir.), ¶52,544.

State Law Update

Oklahoma: Oklahoma added 17 new sections to Article 3 (Loans) of the Oklahoma Uniform Consumer Credit Code to establish coverage of "consumer litigation funding agreements.” The law took effect Nov. 1, 2013, and begins at Oklahoma ¶5268.1.

Texas: Texas voters approved by nearly a 3 to 1 margin a constitutional amendment authorizing the making of reverse mortgage loans for the purchase of homestead property. Analysis appears in Report No. 1180, Nov. 12, 2013.

Secured Transactions Guide

Security interest unperfected; “Accounts” are not “proceeds”
In accordance with the Tennessee Uniform Commercial Code, a bank that failed to include “accounts” or “accounts receivable” in its description of collateral contained within its filed UCC financing statements did not have a perfected security interest in the debtors’ accounts receivable. As a result, the U.S. Court of Appeals for the Sixth Circuit held that the bank’s unperfected security interest in the accounts was subordinate to subsequent creditors’ perfected security interests. To perfect a security interest in the debtors’ equipment, accounts, and proceeds, the bank filed UCC financing statements identifying the collateral as the specified equipment, and “all proceeds thereof, including rental and/or lease receipts.” The financing statements did not reference “accounts” or “accounts receivable.” The court concluded the word “proceeds” did not include the debtors’ accounts receivable. Accounts receivable or revenues collected as the result of using secured equipment do not constitute proceeds, the court stated. 1st Source Bank v. Wilson Bank & Trust (6thCir), ¶56,339.

Debtor could not avoid lapsed security interest
A debtor in bankruptcy proceedings could not avoid a bank’s security interest in leased property despite the fact that the bank’s security interest lapsed after the debtor filed a petition for bankruptcy protection. The post-petition lapse of the security interest did not affect the priority of the competing interests. The lease had created a security interest under North Carolina law. On Oct. 27, 2006, the bank filed a UCC-1 financing statement with the North Carolina Secretary of State. Under North Carolina law, a financing statement is effective for five years after the date of filing. On Sept. 9, 2011, the debtor filed a voluntary petition for bankruptcy protection under Chapter 11, and the bank’s financing statement lapsed approximately seven weeks later. However, under North Carolina law, the bank’s security interest had priority over the debtor’s powers as a lien creditor acquired as of the date of the commencement of the bankruptcy action and while the security interest was perfected. In re Miller Brothers Lumber Co., Inc.; American Bank, FSB v. Miller Brothers Lumber Co., Inc., LLC (M.D.N.C.), ¶56,337.

State Law Update

Kentucky: Kentucky has published emergency regulations relating to definitions, UCC record delivery, payment of fees, the acceptance and refusal of records, the UCC information management system, filing and data entry procedures, and UCC search requests and reports, in order to reflect changes in UCC filing requirements included in the amendments to Revised Article 9 that were effective July 1, 2013.The regulations begin at Kentucky, ¶1401.

Maine: Maine has repealed and replaced UCC Article 9 regulations that were enacted in July. The regulations relate to definitions, acceptance and refusal of documents, the UCC information management system, filing and data entry procedures, and UCC search requests and reports. The regulations begin at Maine, ¶1301.

Financial Privacy Law Guide

CFPB seeks to streamline privacy notice requirements

In its fourth semi-annual report to Congress, the Consumer Financial Protection Bureau said it plans to release a proposed rule to seek comment on streamlining certain requirements to provide consumers with annual notices of financial institutions’ information-sharing practices. This proposal would follow up on comments received in response to a request for public input on priority areas for regulatory action. Some commenters suggested that eliminating the requirement to provide annual privacy notices under the Gramm-Leach-Bliley Act in certain situations—for instance, where financial institutions do not share information with third parties or have not changed their practices since provision of the last annual notice—would significantly reduce the compliance burden for industry and unwanted paperwork for consumers. This story appears in Report No. 149, Nov. 13, 2013.

FTC denies application for proposed COPPA consent method
The Federal Trade Commission has denied an application seeking approval of a proposed verifiable parental consent (VPC) method submitted by AssertID, Inc., under the agency’s Children’s Online Privacy Protection (COPPA) Rule. In a letter to AssertID, the FTC noted that the company’s proposal failed to provide sufficient evidence that its method would meet the rule’s requirements. Specifically, the agency noted that there was not yet adequate research or market testing to show the effectiveness of the AssertID “social-graph verification” method. This story appears in Privacy Extra, Nov. 27, 2013.

Associations urge action on information sharing legislation

The Financial Services Roundtable (FSR), American Bankers Association (ABA), and Securities Industry and Financial Markets Association (SIFMA) are urging Congress to expeditiously enact threat information sharing legislation to combat current and future cyber threats. In a joint letter to Sen. Dianne Feinstein (D-Cal) and Sen. Saxby Chambliss (R-Ga), the respective Chair and Ranking Member of the Senate Select Committee on Intelligence, the associations stressed the importance of legislation to protect consumers from cyber intrusions. This story appears in Privacy Extra, Nov. 27, 2013.