Consumer Financial Protection Bureau Reporter

CFPB Guides on Mortgage Origination Rule Compliance
The Consumer Financial Protection Bureau has issued guidance on its ability to repay and qualified mortgage rule. The guidance outlines 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 bureau adopted the rule on Jan. 30, 2013, with an effective date of Jan. 10, 2014. This story appears in Report 85, April 22, 2013.

CFPB Proposes Clarifying Amendments to Final Escrow Rule
The Consumer Financial Protection Bureau is proposing to amend the escrow rule it adopted as final on Jan. 10, 2013, and published in the Federal Register on Jan. 22, 2013. The final rule amends Reg. Z—Truth in Lending (12 CFR 1026). The proposal would make clarifying and technical revisions to the final rule. The bureau announced that this is the first of its planned proposals to clarify and provide additional guidance to the mortgage rules it adopted in January. The proposed rule is at ¶300-154, and the bureau’s announcement is at ¶200-214.

Mortgage Insurers to Pay $15.4M for Kickback Activity
The Consumer Financial Protection Bureau has filed enforcement actions in the U.S. District Court for the Southern District of Florida against four mortgage insurers—Genworth Mortgage Insurance Corporation; Mortgage Guaranty Insurance Corporation; Radian Guaranty Inc., and United Guaranty Corporation—for their alleged violations of Section 8 of the Real Estate Settlement Procedures Act which prohibits kickback arrangements with lenders. As part of the settlement, the four companies are to pay penalties totaling $15.4 million, which is based on number of factors, including the companies’ finances, the pervasiveness of its conduct, its relative culpability, and its cooperation with the CFPB. The bureau’s notice is at ¶200-211.

CFPB Finalizes CARD Act Revision
The Consumer Financial Protection Bureau adopted a final rule that revises a Federal Reserve Board rule on credit card fees. The bureau’s final rule amends provisions of Reg. Z-Truth in Lending (12 CFR 1026) and the official interpretation that relate to the Credit Card Accountability Responsibility and Disclosure Act of 2009. The final rule is at ¶300-153.

CFPB Greatly Expands Size, Scope of Consumer Complaint Database
The Consumer Financial Protection Bureau has expanded the information contained in its Consumer Complaint Database by increasing the number of complaints described from 19,000 to more than 90,000. The database also now provides information on complaints about mortgages, bank accounts and services, student loans, and general consumer loans in addition to the credit card account complaints that originally were covered, a CFPB blog notes. The bureau also has adopted a new policy statement that describes how it will make future disclosures of consumer complaint data. The notice is at ¶200-205.

Bureau Amends Reg. E ATM Provisions
The Consumer Financial Protection Bureau adopted a final rule that amends Reg. E—Electronic Fund Transfers (12 CFR 1005) to implement legislation passed in December 2012 that eliminates the requirement that a fee notice be posted on or at automated teller machines but leaves in place the requirement for a specific fee disclosure to appear on the screen of that machine or on paper issued from the machine. The rule is at ¶300-152.

Federal Banking Law Reporter

Fed Proposes Assessments for Largest Companies
The Federal Reserve Board has proposed a new regulation that would establish how assessments would be determined for and collected from the largest bank and thrift holding companies and from nonbank financial companies designated for Fed supervision by the Financial Stability Oversight Council. The new Reg. TT—Supervision and Regulation Assessments of Fees (12 CFR 246) would carry out the Dodd-Frank Act’s instruction that the Fed collect from these institutions the fees estimated to be needed to pay the costs of their supervision. The notice is at ¶152-373.

Rule on Important Nonbank Financial Companies Finalized
The Federal Reserve Board has adopted a rule that establishes criteria the Financial Stability Oversight Council will use in deciding which nonbank companies will be designated for consolidated supervision by the Fed. The rule creates definitions for "predominantly engaged in financial activities," "significant nonbank financial company," and "significant bank holding company." The new Regulation PP—Definitions Relating to Title I of the Dodd-Frank Act (12 CFR 242) will take effect May 6, 2013. The notice is at ¶152-348.

FHFA Considers Restricting Force-Placed Insurance Practices
A Federal Housing Finance Agency proposed policy change would prevent government-sponsored enterprises Fannie Mae and Freddie Mac from buying mortgages unless the loan sellers and servicers are banned from receiving direct or indirect compensation for force-placed insurance. According to the FHFA, in the wake of the financial crisis, demands for lender-placed insurance have risen and, as a result, so have GSE expenses related to such coverage. The agency notes that concerns about lender-placed insurance costs, compensation, and practices have been raised by the National Association of Insurance Commissioners, state regulators, the Consumer Financial Protection Bureau, state attorneys general, and consumer organizations. Generally, these concerns have centered on excessive rates and costs passed on to borrowers, as well as on commissions and other compensation paid to servicers by carriers. The FHFA's notice is at ¶152-331.

Interagency Guidance on Force-Placed Insurance Released
The Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, National Credit Union Administration, and Farm Credit Administration have issued interagency guidance to inform financial institutions about the effective date of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012, enacted July 6, 2012, and the impact of the act on the agencies’ proposed Interagency Questions and Answers. According to the guidance, amendments made by the act to the Flood Disaster Protection Act force-placement provisions were effective upon enactment. CA 13-2, OCC 2013-10, FIL-14-2013, and the interagency statement are at ¶64-963.

FFIEC Updates HMDA Guide for March 2014 Reporting
The Federal Financial Institutions Examination Council has published “A Guide to HMDA Reporting: Getting It Right!” The guide is intended to assist financial institutions comply with the Home Mortgage Disclosure Act and Reg. C—Home Mortgage Disclosure (12 CFR 1003) requirements for March 2014 HMDA reports. The guidance is at ¶64-294.

Consumer Credit Guide

Hawaii’s Res Judicata Principles Nullify Borrowers’ Rescission Rights Under TILA
In connection with a borrower’s right under the federal Truth in Lending Act to rescind a home mortgage financing within three years of consummation of the loan, the Supreme Court of Hawaii held that Hawaii’s res judicata principles prohibited certain borrowers from exercising their unexpired TILA rescission rights after a state foreclosure judgment became final. The Supreme Court of Hawaii recognized that the borrowers’ effort to rescind the mortgage transaction occurred within the three-year time limit set by TILA; no expiration of the three-year limit took place. However, the court decided that the borrowers were prohibited from asserting TILA violations in an attempt to rescind the mortgage transaction after the state foreclosure judgment became final. In reaching its decision, the court stressed that the res judicata doctrine not only prevents the relitigation of claims or defenses that actually were litigated, but also prevents all claims or defenses that could have been properly litigated. Eastern Savings Bank, FSB v. Esteban (HawSCt) ¶52,481.

Law Firms Subject to California Debt Collection Law
Even though California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) exempts attorneys from its definition of a "debt collector," the U.S. District Court for the Eastern District of California decided that the exemption did not extend to law firms. Under the provision of the Rosenthal Act defining a "debt collector," the definition “does not include an attorney or counselor at law." In reviewing the plain meaning of the California provision, its statutory context, legislative history, and public policy, the court decided that the "attorney" exemption from the Rosenthal Act did not extend to a "law firm." In the court’s view, attorneys who are exempted by the Rosenthal Act are still regulated by the State Bar of California; however, since there is no similar, alternative regulatory regime for law firms, "to exempt them would undermine the public policy articulated in . . . [the Rosenthal Act] to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts." Consequently, the consumer’s action, claiming violations of both federal and state law for the law firm’s alleged collection related conduct, was allowed to proceed. Davis v. Hollins Law, a Professional Corporation (EDCal) ¶52,480.

FCRA Claim Fails for Lack of Evidence of Actual Damages
In connection with a consumer’s claim against a company for violations of the federal Fair Credit Reporting Act, the U.S. Court of Appeals for the Eighth Circuit recently ruled that, regardless of whether any violation occurred, the consumer’s FCRA claim failed because there was a lack of evidence of actual damages. The consumer sued the company, asserting that it violated the FCRA by failing to “adopt and follow reasonable procedures” designed to assure the “maximum possible accuracy” of the consumer’s credit and other personal information. The consumer further claimed that the company published “false and inaccurate information” that caused her “severe humiliation, emotional distress and mental anguish.” The Eighth Circuit emphasized that it did not need to determine the issue of whether the company complied with the FCRA because, based on the court record, there simply was not enough evidence to show that the consumer suffered “actual damages” from any violation. The Eighth Circuit determined that genuine injury and actual damages were not present in the case because the consumer was not medically treated for any psychological or emotional injury, her deposition testimony about being “extremely upset and embarrassed” by entries in her consumer report was not sufficient, no adverse action was taken on the consumer report, and the company quickly followed up with a second consumer report after receiving additional information. Taylor v. Tenant Tracker, Inc. (8thCir) ¶52,486.

Tenant Rental Histories May Constitute “Consumer Reports”
The Federal Trade Commission has warned the operators of six websites that share information about consumers’ rental histories with landlords that they may be subject to the requirements of the federal Fair Credit Reporting Act. In a letter sent to each operator, the FTC informed the recipients that if they meet certain criteria—collecting or evaluating information on tenants’ rental histories and providing that information to landlords so they can make judgments about renting to those tenants—they are considered to be “credit reporting agencies” that are subject to certain legal requirements under the FCRA. The FTC’s letter notes that the information provided to landlords is considered to be a “consumer report” as well. The letter further informs recipients that, although it has made no determination whether the companies have violated the law, the FTC is encouraging them to review their business practices to ensure that they comply with the FCRA. The letter states no deadline for ensuring compliance, but it provides contact information if the companies have any questions. This story appears in Report No. 1165, April 16, 2013.

State Law Update
Arkansas: Beginning July 1, 2013, a licensed collection agency must maintain a surety bond in the minimum amount of $10,000, an increase from the current minimum amount of $5,000. The maximum amount of the bond was increased to $50,000 from the current $25,000. The law is at Arkansas ¶6126.

Iowa: Amendments to the Delay Deposit Services Licensing Act authorize the superintendent of banking to require lenders to be licensed through a nationwide licensing system and to pay the applicable system processing fees. The law is at Iowa ¶7003.

Kansas: Legislation introduced at the request of the Kansas Bankers Association increases the maximum annual interest rate that can be charged for first mortgage loans and contracts for deed from 1½ to 3½ percentage points above a specified Freddie Mac monthly floating rate cap. The law is at Kansas ¶6405A.
Montana: Numerous changes to the Montana Consumer Loan Act enacted at the request of the Department of Administration revise various provisions governing the calculation of interest, administrative enforcement, recordkeeping and reporting requirements, and implementation of a nationwide licensing system. According to Melanie Hall, Commissioner of the DOA’s Division of Banking & Financial Institutions, while the legislation was largely a housekeeping measure, substantive amendments were required to incorporate conforming changes resulting from a previously adopted voter initiative (I-164) that took effect Jan. 1, 2011. Analysis appears in Report No. 1165, April 16, 2013.

North Dakota: Legislation introduced at the request of the Department of Financial Institutions implements nationwide licensing procedures for collection agencies, payday lenders, and money transmitters. The legislation also includes an amendment to the deferred presentment service provider statute governing payday lenders that effectively increases the returned check fee a lender may charge if a check or electronic debit is returned to the lender due to insufficient funds. Analysis appears in Report No. 1165, April 16, 2013.

Tennessee: Recently enacted legislation allows title lenders to accept payments on existing title loans at any time, notwithstanding restrictions on office hours that are currently in effect. According to the measure’s sponsor, Rep. Jon Lundberg, the legislation allows lenders to accept payments made after business hours by debit or credit card over the phone, or to process other electronic payments such as ACH transactions or online payments. The law is at Tennessee ¶6335.

Utah: Legislation Utah has enacted the Financial Transaction Card Protection Act, not only to restructure the laws governing "financial transaction cards" in the state in general but also to prohibit surcharges on credit cards in particular. Among other things, the new law renumbers and amends prior provisions of the Utah Code covering financial transaction card receipts. Analysis is in Report No. 1165, April 16, 2013.

Wyoming: Uniform Consumer Credit Code amendments increase the jurisdictional amount of a transaction subject to the UCCC from $50,000 to $75,000. In addition, creditors that offer or advertise in the state of Wyoming will be subject to the UCCC if a Wyoming resident enters into a consumer credit transaction with that creditor. Protections for military servicemembers authorize the UCCC administrator to enforce appropriate remedies, penalties, and administrative actions for violations of Section 670 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (P. L. 109-364) and any implementing regulations. The law is at Wyoming ¶5021.

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:
• Arkansas: Interest-Usury.
• North Dakota: Contract Interest Rates; Bad Check Fees.
• Oklahoma: UCCC Amendments.
• Tennessee: Collection Service Location Managers; Credit Card Terms.
• Washington: Consumer Loan Act Amendments.

Product Enhancements

Portions of the Consumer Financial Protection Bureau's Examination Manual that are pertinent to credit regulation are now available in the Consumer Credit Guide as an electronic-only feature on IntelliConnect. The Manual guides CFPB examiners in overseeing companies that provide consumer financial products and services. The examination procedures are integrated into the Guide's topical arrangement.

Product-based examination procedures for larger participants in the consumer reporting market and for short-term, small-dollar lending, as well as statutory and regulation-based procedures for unfair, deceptive, or abusive acts or practices are located under the CFPB menu heading on IntelliConnect. Examination procedures for the Truth in Lending Act, Consumer Leasing Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, and Equal Credit Opportunity Act are found under the corresponding menu heading for each Act. The examination procedures follow the explanations, laws and regulations under their respective menu heading.

Secured Transactions Guide

Damages Determined by Article 9, Not Common Law
In accordance with Article 9 of the Massachusetts Uniform Commercial Code, a bank, as the assignee of a subcontractor’s accounts receivable, could recover the total value of payments made on the accounts that a contractor, as the account debtor, misdirected to the subcontractor. As a result, the contractor was ordered to pay almost six times the bank’s actual damages. Although the contractor argued that common law principles directed that the proper measure of damages was the bank’s actual damages, the court determined that the damages should be calculated in accordance with the Massachusetts UCC. Reading Co-Operative Bank v. Construction Company, Inc. (MassSJudCt) ¶56,312.

Agreement Did Not Sufficiently Describe Accounts Receivable
A security agreement and financing statement that described a bank’s secured collateral as “all proceeds and products” of a debtor’s medical equipment did not sufficiently describe the debtor’s accounts receivable, the U.S. Bankruptcy Court for the Northern District of Ohio has held. As a result, the bank did not have a perfected security interest in the debtor’s accounts receivable and could not maintain a secured claim against the debtor’s bankruptcy estate for the funds. The bank argued that, because the use of the medical equipment by the debtor resulted in a right to payment, or the accounts receivable, the right to payment is proceeds of the camera. However, the court determined that the accounts receivable represented debt owed to the debtor or a right to payment, and it “strains the statutory language” to conclude that the debtor’s accounts receivable constituted something that was “collected on” the equipment. There was no right to payment that was generated by, or arose out of, the camera itself. In re Gamma Center, Inc. (BankrNDOhio) ¶56,311.

State Update

Arkansas: In accordance with the new Livestock Owner’s Lien Act, to secure the obligations of a first purchaser to pay the sales price, a livestock owner is now granted a lien in all livestock, and all proceeds of the livestock, sold by the livestock owner for any unpaid portion of the sales price for the livestock. The lien attaches immediately upon the sale of the livestock and continues uninterrupted until the livestock owner or sales agent receives the full amount of the sales price. The validity of the lien is not dependent on possession. A summary of the law appears at Arkansas ¶460 and ¶510.

Mississippi: The Uniform Commercial Code Article 9 revisions that were released by the Uniform Laws Commission and the American Law Institute in 2010 have been enacted. The amendments, which adopt new definitions, revise filing requirements and include new transition provisions, are in substantially the same form as proposed by the ULC and ALI. The law begins at Mississippi ¶R702.

Mississippi has also created a new section of Revised Article 9 intended to prevent and cure false filings. The law provides procedures for initiating a review of the record, terminating a false record, and contesting the termination. The law appears at Mississippi ¶R811A, ¶R820, and ¶R826.

Montana: Montana has enacted the UCC Article 9 revisions that were released by the Uniform Laws Commission and the American Law Institute in 2010. The amendments, which adopt new definitions, revise filing requirements and include new transition provisions, are in substantially the same form as proposed by the ULC and ALI. The law begins at Montana ¶R702

New Mexico: New Mexico has enacted the amendments to Article 9 in substantially the same form as released by the Uniform Laws Commission and the American Law Institute in 2010. The amendments revise and add new definitions, revise filing requirements, and include new transition provisions. The law begins at New Mexico ¶R702.

Utah: Utah has enacted the amendments to Article 9 released by the Uniform Laws Commission and the American Law Institute in 2010. The law also amends an internal reference to Article 9 found in Article 2A and repeals Article 11, which contained the transition provisions for the corrected Uniform Commercial Code enacted in 1977. The law begins at Utah ¶R702.

Virginia: According to an amendment to Revised Article 9, Virginia’s Office of the State Corporation Commission may refuse to accept an initial financing statement or amendment for filing if it appears that the record: is presented for filing for an improper purpose, such as to hinder, harass, or otherwise wrongfully interfere with a person or promote or conduct an illegitimate object or purpose; is materially false or fraudulent; or indicates that the debtor and the secured party are substantially the same person or that an individual debtor is a transmitting utility. The law appears at Virginia ¶R826 and ¶1109.

Financial Privacy Law Guide

FCRA Class Action Settlement not Approved
The U.S. Court of Appeals for the Ninth Circuit refused to approve the settlement of a class action brought by consumers against the three national consumer reporting agencies for alleged violations of the federal Fair Credit Reporting Act and California law. In reversing the decision of the federal district court, the Ninth Circuit determined that the class representatives and class counsel did not adequately represent the absent class members because the circumstances of the case created a divergence of interests between the named representatives and the class. This story on Radcliffe v. Experian Information Solutions, Inc. (9thCir) appears in Privacy Extra, April 30, 2013.

SEC/CFTC Adopt Identity Theft Rules
The Securities and Exchange Commission and the Commodity Futures Trading Commission have adopted a joint final rule requiring broker-dealers, mutual funds, investment advisers, and certain other entities regulated by the agencies to adopt programs to detect red flags and prevent identity theft. According to SEC Chairman Mary Jo White, “These rules are a common-sense response to the growing threat of identity theft to all Americans who invest, save, or borrow money.” This story appears in Report No. 142, April 17, 2013.

State Law Update

South Carolina: An amendment to the Personal Financial Security Act broadens the scope of financial identity fraud, revises the definition of “personal identifying information,” defines the term “Financial resources,” and provides a venue for prosecution of an identity fraud offense. The amendment also narrows the jurisdiction of an identity theft investigation, and it revises the definition of personal identifying information” for purposes of breaches of data security. This story appears in Privacy Extra, April 30, 2013.

North Dakota: The definition of personal identifying information in the Criminal Code section penalizing the unauthorized use of that information has been broadened to include: an individual's photograph or computerized image; an individual's email address; and an individual's username and password of any digital service or computer system. Also, to be proven guilty, the accused person need not be shown to have represented that the person is the individual, or is acting with the authorization or consent of the individual, whose personal identifying information is being wrongly used. This story appears in Privacy Extra, April 30, 2013.

Individual Retirement Plans Guide

Untimely Rollover Excused Due to Adviser’s Error and Taxpayer’s Dyslexia
The IRS granted a waiver of the 60-day rollover requirement for a taxpayer whose failure to timely roll over funds from one IRA to another IRA was due to an error made by an employee of a financial institution. The elderly and dyslexic taxpayer relied on others to describe the contents of documents to her. A financial institution employee with whom she had developed a relationship over the years persuaded her to move a bond fund and two IRAs from that institution to a new financial institution with which he was now affiliated. However, because of dyslexia and her relationship with the employee, she could not realize that her IRA accounts had not been properly rolled over. IRS Letter Ruling 201314057 is at ¶6417.