Consumer Financial Protection Bureau Reporter

CFPB, Regulators Guide on Service Members, Mortgage Servicing
The federal financial institution regulatory agencies—the Consumer Financial Protection Bureau, Federal Reserve Board, Federal Deposit Insurance Corp., National Credit Union Administration and Office of the Comptroller of the Currency—have adopted interagency guidance on how mortgage servicers are to deal with service members who have received permanent change of station (PCS) orders. PCS orders, which require a service member to move to a new duty station, can pose significant issues for a military homeowner because the homeowner must act under short, strict timelines while still required to fulfill all of his financial obligations, including making mortgage payments. If the home being left has fallen in value, the homeowner may be unable to sell it for enough to pay off the mortgage, resulting in an obligation to make housing payments in both the old and new locations. The notice is at ¶1517.

CFPB Guides on Disclosure of Consumer Complaint Data
The Consumer Financial Protection Bureau has finalized a policy statement describing its plans to disclose consumer credit card complaint data. The bureau is simultaneously requesting comment on a proposed policy statement regarding its disclosure of data from consumer complaints about financial products and services other than credit cards. The bureau’s final policy statement is intended to provide consumers with timely and understandable information to make responsible decisions about financial transactions and to enhance the credit card market’s ability to operate transparently and efficiently. The CFPB’s final policy statement is at ¶1516.

The proposed policy statement describes the bureau’s plan to extend the credit card data disclosure practices to consumer complaints about other consumer financial products and services within CFPB jurisdiction. In addition to credit cards, the CFPB would handle complaints on mortgages, bank products such as checking and savings accounts, and certain other consumer loans. The bureau anticipates that its complaint-handling system will accept complaints about all consumer financial products and services by the end of 2012. The proposed policy statement is at ¶200-094.

Agencies Sign Memorandum on Supervisory Coordination
The Consumer Financial Protection Bureau and the four financial institution regulatory agencies have signed a memorandum of understanding outlining how they will coordinate their examinations and other supervisory activities, as required by the Dodd-Frank Act. The memorandum does not apply to the supervision of smaller depository institutions. It is, however, broad, applying to examinations for compliance with the federal financial laws and examinations of risk management, sales activities and third-party vendor relationships. The memorandum is reported at ¶1515.

Elder Financial Abuse Initiative Begun
The Consumer Financial Protection Bureau has begun investigating the financial exploitation and abuse of elderly consumers by asking for information on consumer financial products and services, financial literacy efforts, and fraudulent or deceptive practices affecting the lives of older Americans and their families. The bureau’s Office of Older Americans is charged by the Dodd-Frank Act with examining certifications of financial advisors who serve elderly individuals, and it plans to make recommendations to Congress on how to protect older consumers. The office also is looking into the best ways of educating elderly consumers. The announcement was associated with World Elder Abuse Awareness Day, June 15, 2012. The notice is at ¶200-092.

Date: Mortgage Reform “Front and Center” on CFPB Agenda
In remarks at the American Bankers Association conference in Orlando, Fla., on June 11, 2012, Consumer Financial Protection Bureau Deputy Director Raj Date said that mortgage reform is "front and center" on the bureau's agenda. He stated that the financial crisis "has not made us, at the CFPB, doubt the value of free and competitive markets." Date continued, "the failures of the mortgage market underscore just what functioning, efficient markets are supposed to look like. They're supposed to be transparent; they're supposed to be fair; they're supposed to create financial incentives for hard work and smart decisions." To that end, he said that the bureau is helping to rebuild those elements of a well-functioning mortgage market. Date noted that, earlier this year, the bureau previewed a series of rules it is considering, including practical ideas on improving transparency, such as requiring that servicers: give borrowers better information about monthly payments; provide earlier notice of adjustable rate payment changes; and warn borrowers when they are going to be force-placed into a potentially expensive insurance policy. The story appears in Report 43, June 18, 2012.

CFPB Adopts Rules on Enforcement Process
The Consumer Financial Protection Bureau has adopted final rules governing investigations, adjudications and notices by state regulatory agencies of planned enforcement proceedings. In addition, the CFPB has adopted an interim rule to implement the Equal Access to Justice Act. The rules begin at ¶300-048.

CFPB Offers Rule on Assuming Supervision of Nonbanks
The Consumer Financial Protection Bureau has proposed a rule that would establish the procedures it would use if it is considering whether to supervise a nonbank company based on information giving the bureau reasonable cause to determine the company is posing a risk to consumers. The Dodd-Frank Act gives the CFPB the authority to supervise such companies in addition to supervising mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors and money services companies generally. Before beginning to supervise such a company, the CFPB must decide by order, after giving the company notice and a reasonable opportunity for a hearing, that the company is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. The proposed rule is at ¶300-046.

Federal Banking Law Reporter

RESPA Unearned Fee Ban Applies Only to Fee Splitting
Consumers attempting to show a violation of the Real Estate Settlement Procedures Act ban on unearned fees for settlement services were required to show that the fee in question was divided among at least two persons, the U.S. Supreme Court has decided. In an opinion authored by Associate Justice Antonin Scalia, the Court unanimously rejected consumer claims that RESPA banned a single settlement service provider from accepting a fee for which no service had been performed. Freeman v. Quicken Loans, Inc. (SCt) is at ¶101-331.

Fed Adopts Rule on Securities Holding Company Supervision
The Federal Reserve Board has finalized a rule outlining the procedures to be followed by a securities holding company that wishes to elect Fed supervision. Under the Dodd-Frank Act, a nonbank company that owns at least one registered broker-dealer can choose to be supervised by the Fed as if it were a bank holding company, except that it would not be subject to the Bank Holding Company Act restrictions on nonbanking activity. According to the Fed, an SHC might make that choice to meet requirements by a regulator in another country that the firm must be subject to comprehensive, consolidated supervision in the United States in order to operate in the foreign country. The Fed's notice is at ¶151-367.

Regulators Move Toward Comprehensive Capital Framework
The federal banking regulators have proposed three separate but related rules that are intended to enhance their general risk-based capital rule, leverage rule and advanced approaches risk-based capital rule. The proposals are made jointly by the Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. The agencies also have finalized an amendment to their market risk capital rule. According to the Fed, the agencies intend to combine the amendments and the proposals into a comprehensive capital framework that ultimately will apply to bank holding companies and savings and loan holding companies. The actions are based heavily on the work of the Basel Committee on Banking Supervision and are intended to be consistent with the capital requirements imposed by the Dodd-Frank Act, the Fed said. Related documents begin at ¶151-387.

Fed Committee Looks to Support Growth
Seeking to encourage a stronger economic recovery and reduce unemployment more quickly, the Federal Open Market Committee has decided to extend its existing stimulus measures. Not only will the FOMC maintain the current federal funds rate target at a range of 0 to .25 percent, but it will continue its program of extending the average maturity of the securities it holds. Under the ongoing program, popularly dubbed "Operation Twist," the Federal Reserve Board hopes to push long-term interest rates further down by selling Treasury securities set to mature in three years or less and using the proceeds to buy Treasury securities with remaining maturities between six and 30 years. The plan is expected to shift the maturities of about $267 billion in securities by the end of the year. Further, the committee will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in additional agency mortgage-backed securities. This story is in Report No. 2474, June 22, 2012.

Premature Foreclosure Could Be Debt Collection Violation
Consumers attempting to contest mortgage foreclosures may have another weapon if the creditors’ underlying paperwork is not in order. According to the U.S. Court of Appeals for the Sixth Circuit, a law firm that filed a mortgage foreclosure suit before its client received and recorded an assignment of the mortgage could have made a material misrepresentation in violation of the Fair Debt Collection Practices Act. While the court was careful not to express an opinion on the merits of the consumer’s claim, it did reverse a dismissal of the suit and return it to the trial court where she will have an opportunity to prove that an FDCPA violation occurred. A story on Wallace v. Washington Mutual Bank (6thCir) is in Report No. 2475, June 28, 2012.

Consumer Credit Guide

CFPB Reopens Comment on Regulation Z Proposal
Citing new information it has received, the Consumer Financial Protection Bureau reopened the period for public comment on a rule that would require lenders to assess consumers’ ability to repay mortgage loans before extending them credit. According to the CFPB, data received from the Federal Housing Finance Agency tracking the performance of loans purchased or guaranteed by Fannie Mae and Freddie Mac from 1997 to 2011, as well as data on other securitized loans, necessitated reopening public comment on the proposed Regulation Z amendment. Public comments on the proposal now will be accepted until July 9, 2012. The original proposal to amend Regulation Z (Truth in Lending) was initially published by the Federal Reserve Board in May of 2011. Federal Agency Releases, ¶30,231.

TILA’s Three-Year Rescission Time Limit Requires Lawsuit, Not Written Notification
The U.S. Court of Appeals for the Tenth Circuit recently ruled that a borrower, who claimed that a mortgage lender failed to provide her with the necessary disclosures under the federal Truth in Lending Act, was required to file a lawsuit to rescind the loan transaction within three years. In doing so, the court rejected an amicus curiae brief filed by the Consumer Financial Protection Bureau arguing that the consumer’s written notice to the lender within three years of the loan closing was enough to satisfy the TILA time limit and that it was not necessary for her to file suit. Rosenfield v. HSBC Bank, USA (10thCir), ¶52,431.

Debt Collector’s Validation Notice Did Not Violate FDCPA or California Law
The U.S. Court of Appeals for the Ninth Circuit recently decided that a debt collector’s validation notice did not violate the federal Fair Debt Collection Practices Act or California’s Rosenthal Fair Debt Collection Practices Act. The Ninth Circuit ruled that, as presently provided by the respective federal and state laws, while a debt collector’s validation notice must not expressly require that a consumer’s dispute of a debt be in writing, neither the FDCPA nor the California FDCPA prohibits a debt collector’s notice from implicitly requiring that disputes be in writing. In affirming the ruling in favor of the debt collector, the Ninth Circuit noted that “any confusion over what a consumer must do in writing, versus what she may do in writing, stems at least in part from the FDCPA itself. It would be untenable to read the FDCPA to prohibit validation notices that simply mimic the statute’s own shortcomings.” The Ninth Circuit also determined that, since the validation notice complied with the FDCPA requirements and the validation notice was the sole linchpin for the consumer’s recovery theory, no alleged false, misleading, or deceptive representation by the debt collector could be found to have violated the FDCPA or, by implication, the California FDCPA. Riggs v. Prober & Raphael (9thCir), ¶52,430.

State Law Update

Arizona: Legislation governing the use and terms of credit card agreements will allow a creditor, in an uncontested court action, to establish a presumption of the amount of debt owed on a credit card through a copy of the issuer’s final billing statement or by electronic data maintained by the issuer that represents the amount owed. The law is at Arizona ¶6261.

Louisiana: Amendments to the Louisiana Consumer Credit Law change the license renewal date from January 1 of each year to December 31. The failure to pay a renewal fee and the late fee by March 1 will result in lapse of a license. The law begins at Louisiana ¶5256.

Maryland: Stricter requirements governing rental-purchase transactions expand the circumstances under which a lessor must give a receipt when a payment is made by a consumer. Analysis appears in Report No. 1144, June 12, 2012.

Minnesota: The Minnesota Department of Commerce has announced that dollar amounts indexed in the Minnesota Consumer Credit Code and Regulated Loan Act will increase 10 percent effective July 1, 2012. The amount subject to deficiency judgment restrictions under the Minnesota Statutes also will increase 10 percent effective July 1, 2012. The laws reflecting the adjustments begin at Minnesota ¶6433.

Oklahoma: The Department of Consumer Credit recently released changes in the dollar amounts of the Oklahoma UCCC that are subject to annual change. The dollar amount changes are effective July 1, 2012. The rule is at Oklahoma ¶6582.

South Carolina: The South Carolina Department of Consumer Affairs has announced that, effective July 1, 2012, the dollar amounts in the South Carolina Consumer Protection Code that are subject to periodic adjustment were increased again from the original amounts stated in the Code. The amounts relate to maximum consumer credit sales and consumer loans, and to delinquency charges for consumer credit sales, consumer loans and rental-purchase agreements. The adjusted amounts also pertain to security interests, deficiency judgments, attorney's fees and prepayment penalties. The rule is at South Carolina ¶9201.

Tennessee: Revised judgment interest rate provisions change the judgment interest rate from a flat rate of 10 percent to a rate equal to 2 percent less than the annual formula rate. The law is at Tennessee ¶6421.

Texas: The Consumer Credit Commissioner of Texas set the dollar amounts for brackets and ceilings relating to consumer credit sales and consumer loans under the Texas Finance Code, effective July 1, 2012. The rule is at Texas ¶9001.

Smart Charts Highlights

Some of the latest changes reflected in Consumer Credit Smart Charts include:

• The Legislative Developments Smart Charts are updated regularly as legislation is enacted, allowing users to keep up to date without waiting for a scheduled Report. Links to legislative summaries and to full text of laws amended, repealed or added are provided. Recent updates include:
• Colorado: UCCC—Pawnbroker Exclusion.
• Louisiana: Consumer Leases—Employee Lease Exclusion.
• Maryland: Escrow Account Interest Rates.

Secured Transactions Guide

Creditor Liable for Contractor’s Wrongful Repossession
In accordance with Article 9 of the Illinois UCC, a creditor can be held liable for the actions of an independent contractor the creditor hired to repossess a debtor’s vehicle. During the course of the repossession, the debtor and her daughter jumped into the vehicle and local law enforcement halted the repossession while it was in progress. Section 9-609 of the Illinois UCC provides that a secured party has the right to take possession of the collateral without judicial process so long as there is no breach of the peace. The comments to the section add that courts should hold secured parties liable for the actions of others taken on the secured parties’ behalf, including independent contractors. The court concluded that, regardless of whether an agency relationship existed, the creditor was responsible for the contractor’s actions. Smith v. AFS Acceptance, LLC (NDIll), ¶56,286.

Valid Title Required for Preferred Ship Mortgage
A bank was unable to enforce a preferred ship mortgage in a vessel that it had received as security for a personal loan because the debtor did not have legal title to the vessel. The bank and the debtor had executed a loan agreement and security agreement for a $1 million personal loan made by the bank to the debtor, the former president of the vessel’s shipbuilder. The loan and security agreement identified the debtor as the owner of the vessel. In accordance with federal law, a preferred ship mortgage requires a valid mortgage. The bank, however, did not have a valid mortgage in the vessel because the bank failed to establish that ownership of the vessel was at any time conveyed from the shipbuilder to the debtor. Without evidence of the conveyance, the bank could not prove that the debtor held a good and legal title to the vessel. Without the title, the debtor was unable to convey any interest in the vessel to the bank. Branch Banking & Trust Co. of Virginia v. M/Y "Beowulf" (SDFla), ¶56,287.

State Update

Kansas: Kansas has amended its law relating to self-service storage facility liens to allow for the service of a notice of disposition after default by e-mail. Before conducting a sale after default, the operator of the self-service storage facility must deliver two notices of default to the occupant that may now be delivered by e-mail, if the occupant provided an e-mail address to the operator. The law is at Kansas, ¶420

Louisiana: Any person who knowingly files or attempts to file a false lien or encumbrance in Louisiana against the real or personal property of a law enforcement officer or court officer in retaliation against the officer for the performance of the officer’s official duties may now be subject to up to two years imprisonment and a fine between $500 and the amount of the value of false lien or encumbrance. The law is at Louisiana, ¶996.

Rhode Island: Rhode Island has amended its self-service storage facility lien provisions to allow for the service of a notice of disposition after default by e-mail and to provide for a second notice of disposition prior to the sale. The law is at Rhode Island, ¶430.

South Carolina: The provision relating to the amount of property exempt from execution and sale has been amended to remove the limitation on individual retirement accounts that the exemption only apply to the extent reasonably necessary for the support of the debtor and the debtor’s dependents. The amended law also provides that the exemption will be available whether the individual has interest in the retirement plan as a participant, beneficiary, contingent annuitant, alternate payee or otherwise. The law is at South Carolina, ¶1083.

Financial Privacy Law Guide

Statutory Violation Alone Not Enough for Standing
A federal district court has held that a statutory violation of the Electronic Fund Transfer Act (EFTA) without any allegations of additional harm is not enough to establish the minimum constitutional requirements necessary for standing to sue. However, the court has stayed its decision pending the outcome of a similar issue currently before the Supreme Court. According to the complaint, the individual made two electronic fund transfers from the bank’s automated teller machine and was charged a $2 fee for each transaction. The individual brought suit against the bank for violating the EFTA for failing to post a notice "on or at" the ATM informing consumers that a fee would be charged for the use of the ATM. The bank’s failure to give notice to which the individual was statutorily entitled did not constitute an injury in fact, the court concluded. “The Constitution requires more than an injury in law. A plaintiff must allege an injury in fact that was caused by the lack of an exterior fee notice on the ATM,” stated the court. A story on Charvat v. First National Bank of Wahoo (DNeb) is in Privacy Extra, June 29, 2012

Consumer Could Not Revoke Consent to Contact Under TCPA
A creditor’s prerecorded messages sent to a debtor’s mobile telephone number did not violate the Telephone Consumer Protection Act (TCPA) despite the fact that the debtor had revoked her consent to receive calls to her mobile telephone number, a federal district court has held. The debtor had provided her mobile telephone number on her credit application in a space marked for her home telephone number. The TCPA provides that it is unlawful for a person to make any call using a prerecorded voice to any cellular telephone number or to any service for which the called party is charged without prior express consent of the called party. The TCPA does not contain any provision that would permit the post-formation revocation of consent, the court concluded. In addition, calls regarding debt collection or to recover payment do not constitute telemarketing and are not subject the TCPA’s restrictions. Thus, the creditor’s calls did not violate the TCPA. Gager v. Dell Financial Services, LLC (MDPa) at ¶100-587.

Connecticut Requires Attorney General Notification of Breach
An amendment to the Connecticut data breach law requires that notice of a breach be provided to the state Attorney General no later than when notice is provided to the affected residents. Under current law, notice must be provided to residents without unreasonable delay following discovery of the breach. Also, institutions currently deemed to be in compliance with state requirements if they comply with their federal financial regulator’s security breach procedures must also, to maintain that exemption under the amended law, notify the state Attorney General of a data breach. A story on H.B. 6001 is in Privacy Extra, June 29, 2012.

Individual Retirement Plans Guide

Tax on Early Distribution from Roth IRA Upheld
A taxpayer was subject to tax on an early distribution from his Roth IRA that he had not included in gross income for the tax year at issue, according to the Tax Court. The taxpayer was less than 59-1/2 years old when he received the distribution. The taxpayer asserted that he withdrew funds from his IRA "due to its rapidly shrinking value," and that he intended to invest the funds in a condominium in California. Subsequently, he lost his job and his residential lease. The taxpayer testified that the broker handling his IRA account had mentioned a 10-percent penalty for an early distribution, but he did not receive the Form 1099-R sent by the broker, and he was unaware that income tax was due on the distribution. The court found that the taxpayer had not contended that any of the circumstances under which early distributions from an IRA are not subject to the 10-percent additional tax on early distribution applied. Rather, the court determined, his testimony showed that none of the conditions for exemption applied. Tax Court Memorandum 2012-136 is at ¶10,343.