Consumer Financial Protection Bureau Reporter

CFPB refutes discrimination, retaliation charges in subcommittee testimony
The House Financial Services Oversight and Investigations Subcommittee held a hearing on May 21 to examine allegations of employee discrimination and retaliatory actions at the Consumer Financial Protection Bureau. Two bureau officials and a member of the CFPB’s employee union were subpoenaed by the subcommittee to testify on the charges. Subcommittee members voted 20-1 to issue subpoenas to Stacey Bach, Assistant Director of the CFPB’s Office of Equal Employment Opportunity, Liza Strong, Director of Employee Relations at the CFPB, and Ben Konop, Executive Vice President of Chapter 335 of the National Treasury Employees Union (NTEU). Strong and Konop appeared at the hearing, but Bach requested her testimony be postponed due to a medical condition, according to a statement by the House Financial Services Committee. This story appeared Report No. 141, June 2, 2014.

CFPB proposes revisions to 2013 mortgage rules
The Consumer Financial Protection Bureau is proposing to make adjustments to its final 2013 mortgage rules, most of which took effect in January 2014. The revisions to the rules are intended to ensure access to credit. The bureau said that the changes are in response to concern over origination and servicing issues. The CFPB proposes to: provide an alternative definition of the term “small servicer” that would apply to certain nonprofit entities;; amend the Regulation Z ability-to-repay requirements for certain nonprofit creditors; and provide a limited, post-consummation cure mechanism for loans originated with the good faith expectation of qualified mortgage status but that actually exceed the points and fees limits for QMs. The proposed rule is at ¶300-191.

Bureau outlines expectations when exams reveal compliance violations
The Consumer Financial Protection Bureau has announced implementations to its Examination Reports and Supervisory Letters sent to supervised entities after bureau reviews of their compliance with federal consumer financial laws. The key change is a new section that includes all of the items that the CFPB expects the institution to address when a bureau review identifies violations of law or weaknesses in compliance management. The CFPB said that the section will be referred to as “Matters Requiring Attention,” regardless of whether the bureau is requiring specific attention by an entity’s board of directors. The implementations can be found at ¶1542.

Bureau hits realty firm with $500,000 penalty for RESPA violation charges
The largest real estate broker in Alabama has agreed to pay $500,000 to settle charges that it gave consumers disclosures that were inadequate to satisfy requirements of the Real Estate Settlement Procedures Act, according to the Consumer Financial Protection Bureau. The bureau says that RealtySouth referred homebuyers to an affiliated title insurance and closing company without telling homebuyers that they were free to shop around for those services. This resulted in an illegal benefit for TitleSouth LLC, the affiliate, the CFPB alleges. The case was referred to the CFPB by the Department of Housing and Urban Development. This story appeared in Report No. 141, June 2, 2014.

Public now welcome at CFPB meetings under new open-door policy
The Consumer Financial Protection Bureau has decided to alter its previous stance on bureau Consumer Advisory Board and Council meetings to allow full access to the public. The change in policy is in response to requests by stakeholders for more openness by the bureau. CFPB Director Richard Cordray will be speaking at the June 18 meeting as board members discuss trends and themes they are witnessing in the marketplace and provide feedback about bureau resources for consumers in the housing market. This story appeared in Report No. 139, May 19, 2014.

Target of CFPB enforcement action seeks dismissal of UDAAP charges
ITT Educational Services, a for-profit education company targeted by the Consumer Financial Protection Bureau for unfair, deceptive, or abusive practices (UDAAP), has filed a motion to dismiss the bureau’s complaint. ITT is the defendant in the CFPB’s first enforcement action against a for-profit education company. In its motion to dismiss the bureau’s complaint, ITT contends that: the lawsuit violates the U.S. Constitution; the complaint fails to adequately allege that the company engaged in unfair or abusive practices; and ITT is not a “covered person” under the Consumer Financial Protection Act. This story appeared in Report No. 138, May 12, 2014.

Federal Banking Law Reporter

Right to rescind mortgage not a guarantee of ability to do so
Mortgage loan borrowers who had a three-year right to rescind their mortgage loans due to inadequate Truth in Lending Act disclosures were not entitled to rescission procedures that would assure their practical ability to implement the right, the U.S. Court of Appeals for the Seventh Circuit has decided. Rescission is an equitable remedy, the court said, and TILA gives courts the authority to structure the process in a manner that is fair to both borrowers and creditors. In the circumstances of this case, it was fair to require the borrowers to tender the amount they owed before the creditors released their security interests, reject the borrowers’ proposed installment payment plan, and give the borrowers only 90 days to produce the required funds. Iroanyah v. Bank of America (7th Cir.) is at ¶101-500.

Fed seeks comments on proposed M&A concentration limits
The Federal Reserve Board has proposed merger and acquisition concentration limits to implement section 622 of the Dodd-Frank Act (12 U.S.C. §1852). The limits are intended to prevent a “financial company” from merging or consolidating with, acquiring all or substantially all of the assets of, or otherwise acquiring control of another company—a “covered acquisition”—if the resulting company’s consolidated liabilities would exceed 10 percent of the aggregate consolidated liabilities of all financial companies. The Dodd-Frank Act concentration limit supplements a nationwide deposit cap that generally prohibits the appropriate federal banking agency from approving an application by a bank holding company, insured depository institution, or savings and loan holding company to acquire an insured depository institution located in a home state than that of the acquiring company if the acquiring company controls, or following the acquisition would control, more than 10 percent of the total amount of deposits of insured depository institutions in the United States. The Fed’s notice is at ¶153-157.

Stress test results say GSEs could need more support
The first Dodd-Frank Act stress tests performed on Fannie Mae and Freddie Mac indicate that under the severely adverse scenario the two GSEs would be required to draw substantial amounts from the Treasury Department—between $84.4 billion and $190 billion, depending on the treatment of certain deferred tax assets. However, three scenarios designed by the Federal Housing Finance Agency produce much more optimistic results, projecting that no additional draws would be needed and that the two GSEs actually would continue to pay dividends to the Treasury. The FHFA’s notice is at ¶153-144.

CRA examination procedures for large institutions revised
The Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency have updated Community Reinvestment Act examination guidance to explain how community development activities that benefit a broader statewide or regional area that includes an institution’s assessment area and investments in nationwide funds will be considered when evaluating an institution’s CRA performance, assigning ratings, and developing public performance evaluations. OCC 2014-16 and CA 14-2 are at ¶50-316.

Consumer Credit Guide

Obtaining credit reports to prevent identity theft permissible under FCRA
A satellite television service company would not have violated the federal Fair Credit Reporting Act by ordering consumer reports about a consumer it believed to be a potential customer in order to verify the customer’s identity, the U.S. Court of Appeals for the Sixth Circuit has decided. According to the Sixth Circuit, the company’s need to verify the identity of the service applicant was a legitimate business purpose as required by the FCRA. However, the court agreed that the company failed to show that the consumer’s suit was an abuse of process under Kentucky law. Bickley v. Dish Network, LLC (6th Cir.), ¶52,587.

Mortgage could not be rescinded as defensive tactic under state law
The Supreme Judicial Court of Massachusetts ruled that, under the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA), an “obligor” borrower who grants a mortgage in a consumer credit transaction may not rescind the transaction defensively—by way of recoupment—after the expiration of the MCCCDA’s four-year statute of limitations. In reaching its decision, the Massachusetts high court answered a certified question of law posed to it by the U.S. Bankruptcy Court for the District of Massachusetts. May v. SunTrust Mortgage, Inc. (Mass. Sup. Ct.), ¶52,584.

FCRA claims timely despite challenge by “furnisher” banks
Despite a challenge by two banks, a consumer’s claims under the federal Fair Credit Reporting Act against the banks were timely filed, the U.S. District Court for the Southern District of New York ruled. In denying the banks’ request to dismiss the consumer’s amended complaint, which alleged that the banks engaged in unlawful credit reporting practices as “furnishers” of credit information to credit reporting agencies, the court determined that the claims were not barred by the FCRA’s two-year statute of limitations. Marcinski v. RBS Citizens Bank, N.A. (S.D.N.Y.), ¶52,586.

State Law Update

Georgia: Recently enacted legislation excludes a number of deposit account fees from Georgia’s interest-usury law restrictions. Under the state’s interest-usury law, the legal rate of interest is 7 percent per annum simple interest unless the rate is established by a written contract. The law is at Georgia ¶6402.

Oklahoma: Amendments to the Oklahoma Uniform Consumer Credit Code modify the loan finance rates that a supervised lender may charge. The legislation also imposes a 12-month minimum loan repayment term for supervised loans. Analysis appears in Report No. 1193, May 27, 2014.

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:
• Louisiana: Loan Information Collection.
• Oklahoma: Supervised Lender Rates.
• Vermont: Pension Loans.

Secured Transactions Guide

Creditor had no security interest in lottery payments
A structured annuity settlement company that entered into an agreement with an individual to purchase the individual’s lottery winnings, did not have an interest in the annuity payments that was sufficient to challenge a court order approving the individual’s subsequent assignment to a third party. Because the company had yet to make a payment to the individual under its agreement, the Arizona Court of Appeals concluded that the company had no security interest in the annuity payments. Although the individual had signed an agreement to assign his interest in his remaining annuity payments in exchange for a lump-sum payment, he emailed the company that same day to inform the company he wanted to cancel the agreement in order to “pursue other funding.” The company, however, refused to accept the rescission and attempted to perfect a security interest in the annuity payments. Article 9 of the Arizona UCC provides that a security interest becomes enforceable when: “(1) the debtor has signed a security agreement containing the description of the collateral; (2) value has been given; and (3) the debtor has rights in the collateral.” Because the company never paid the individual the lump sum to which they agreed, the company never gave value for the assignment. Woodbridge Structured Funding, LLC v. Arizona Lottery (Az. App.), ¶56,361.

Security interest defeated by buyer in ordinary course
A creditor with a perfected security interest in a debtor’s equipment could not assert its interest against a third-party purchaser of the equipment. As a buyer in the ordinary course of business, the purchaser took the equipment free of the creditor’s security interest. The creditor argued that the purchaser was not a buyer in the ordinary course, because the purchase agreement contained trade-in and buy-back provisions that it contended were not standard in the industry. A buyer in the ordinary course of business takes the property free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. A buyer in the ordinary course is defined as “a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind.” The sale must comport “with the usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices.” The court concluded the sale satisfied the requirement, and the purchaser was a buyer in the ordinary course. Financial Federal Credit, Inc. v. Crane Consultants, LLC (W.D.N.Y.), ¶56,360.

Possessory lien in aircraft superior to PMSI
If valid, a creditor’s statutory possessory lien in an aircraft was superior to a finance company’s purchase money security interest. Oklahoma law provides that any lienholder who claims a possessory lien on aircraft for "furnishing storage, rental space, material, labor or skill for the protection, improvement, safekeeping, towing, right to occupy space, storage or carriage thereof" does so pursuant to 42 O.S. 91A. Section 9-333 of the Oklahoma UCC provides that “[a] possessory lien on goods has priority over a security interest in the goods unless the lien is created by a statute that expressly provides otherwise.” Because the statute creating the lien, section 91A, does not provide otherwise, a valid possessory lien is superior to a purchase money security interest. Blue Sky Telluride LLC v. Intercontinental Jet Service Corp. (Okla. App.), ¶56,359.

State Law Update

Arizona: Arizona has enacted the amendments to Article 9 released by the Uniform Laws Commission (ULC) and the American Law Institute (ALI) in 2010. The amendments are in substantially the same form as proposed by the ULC and ALI and will take effect July 1, 2014. The law begins at Arizona, ¶R702.

Oklahoma: The definitions of “all-terrain vehicle” and “recreational off-highway vehicle” for the purposes of Oklahoma’s certificate of title provisions have been amended to better specify the vehicles by measurement. The term “all-terrain vehicle” now includes vehicles manufactured and used exclusively for off-highway use traveling on four or more non-highway tires and 50 inches or less in width, while the term “recreational off-highway vehicle” means a vehicle manufactured and used exclusively for off-highway use, traveling on four or more non-highway tires and 65 inches or less in width. The law appears at Oklahoma, ¶1001.

Tennessee: The holder of a repairman’s lien or garage keeper’s lien in Tennessee that is seeking to enforce the lien against a vehicle will now be required to include the vehicle identification number in the notice and advertisement of the sale. The law appears at Tennessee, ¶1193 and ¶1195.

Financial Privacy Law Guide

CFPB proposes online privacy disclosure option
The Consumer Financial Protection Bureau is proposing to amend Regulation P (12 CFR Part 1016), which requires that financial institutions provide an annual disclosure of their privacy policies to their customers. The amendment would create an alternate method of delivery for the disclosure under certain circumstances. The proposed rule is intended to promote more effective privacy disclosures from financial institutions to their customers. Under the proposed rule, institutions would be allowed to post privacy notices online instead of distributing an annual paper copy if they satisfy certain conditions, such as not sharing data in ways that would trigger consumers’ opt-out rights. The CFPB’s proposed regulation is at ¶100-654.

FinCEN assesses penalty against money services business
The Financial Crimes Enforcement Network assessed a $10,000 civil penalty against New Milenium Cash Exchange, Inc. (NMCE) and its president and owner, Flor Angella Lopez, pursuant to the Bank Secrecy Act and implementing regulations. NMCE and Lopez consented to the imposition of the penalty and admitted to violating the Bank Secrecy Act’s program, recordkeeping, and reporting requirements. This story appeared in Report No. 155, May 15, 2014.

State Law Update

Arizona: The Arizona legislature has increased the offense of knowingly accepting the identity of another person from a class 4 to a class 3 felony. It has also decreased, from $3,000 to $1,000, the minimum economic loss a victim of identity theft must suffer to constitute aggravated taking the identity of another person or entity. Under this change, the crime of “knowingly accepting the identity of another person” will have the same felony level as the crime of “aggravated taking the identity of another person or entity.” This story appeared in Report No. 155, May 15, 2014.

Georgia: Georgia has extended its security freeze law to cover persons under the age of 16 and persons for whom a guardian or conservator has been appointed. The law refers to these individuals as “protected consumers.” This story appeared in Report No. 155, May 15, 2014.

Kentucky: Kentucky has become the 47th state to enact a data breach notification law. The new law applies to any person or business that conducts business in Kentucky. It exempts from its provisions any person subject to the privacy provisions of the Gramm-Leach-Bliley Act of 1999 or the Health Insurance Portability and Accountability Act of 1996. It also exempts any governmental body in Kentucky. This story appeared in Report No. 155, May 15, 2014.

Virginia: Virginia has amended its security freeze law by providing that a protected consumer's representative can request that a consumer reporting agency place a security freeze on the protected consumer's credit report. A “protected consumer” is a Virginia resident who is either younger than the age of 16 at the time a request for the placement of a security freeze is made or is an incapacitated person for whom a guardian or conservator has been appointed. This story appeared in Report No. 155, May 15, 2014.