Consumer Financial Protection Bureau Reporter

Mortgage lending examination procedures updated
The Consumer Financial Protection Bureau has issued updates to its Truth in Lending Act and Real Estate Settlement Procedures Act examination procedures to reflect the mortgage lending rules adopted since January 2013. According to the CFPB, the updates cover the rules on consumers’ ability to repay their loans, qualified mortgages, high-cost mortgages, appraisals for higher-priced mortgage loans, and escrow accounts. In addition, recent changes to credit card rules are covered. The examination procedures now cover the bureau’s mortgage origination rules issued and amended through May 29, 2013, and mortgage servicing rules issued and amended through July 10, 2013. Generally, the rules take effect Jan. 10, 2014. The updated RESPA exam procedures are reproduced at ¶19-523, and the TILA exam procedures are at ¶24-005.

CFPB corrects remittance transfer rule, updates guidance
The Consumer Financial Protection Bureau has adopted a correction to its international electronic fund transfers rule to clarify what remedies a consumer has when a remittance transfer has failed because the consumer provided an incorrect address to the service provider. The bureau also updated its previously issued international electronic fund transfer Small Business Guide and issued a new video that explains the remittance transfer regulations. The new guide and video replace the versions that were issued in 2012. The correction is at ¶300-171, and the updated guidance is at ¶41-511.

CFPB obtains $11.4 million judgment and injunction in mortgage/debt relief action
The Consumer Financial Protection Bureau has obtained an $11.4 million civil judgment and a permanent injunction against various defendants who were involved—either directly or indirectly—in the marketing or selling of mortgage-relief and debt-relief products or services to consumers. In granting the monetary and injunctive relief to the CFPB, the U.S. District Court for the Central District of California finalized its prior June 2013 order granting summary judgment to the CFPB while denying the defendants’ own request for summary judgment. The court’s final judgment and permanent injunction also supplements its prior February 2013 stipulated final judgment and order for permanent injunction against all other named defendants in the CFPB’s action. The Consumer Financial Protection Bureau v. Gordon, et al. (C.D. Cal.) is at ¶100-096.

CFPB issues updated ATR/QM small entity compliance guide
The Consumer Financial Protection Bureau has updated its Small Entity Compliance Guide for the Ability-to-Repay and Qualified Mortgage Rule to incorporate clarifications and amendments to the rules issued by the CFPB on May 29, 2013, and July 10, 2013.The notice is at ¶24-017.

Federal Banking Law Reporter

Fed adopts assessment rule for large financial companies
The Federal Reserve Board has issued a final rule implementing section 318(c) of the Dodd-Frank Act (12 U.S.C. §248(s)), which requires the Fed to collect assessments, fees, and other charges that are equal to the expenses incurred by the agency to carry out its responsibilities with respect to bank holding companies and savings and loan holding companies with assets equal to or greater than $50 billion. The final rule will also apply to non-bank financial companies designated by the Financial Stability Oversight Council as posing a potential threat to the country’s financial stability and subject to consolidated supervision by the Fed. The final rule is at ¶152-610.

Loan modification trial success could create modification right
Consumers who fully complied with a mortgage loan modification trial period plan under the Home Affordable Modification Program (HAMP) and were never told they were not qualified would have a contractual right to a permanent modification, the U.S. Court of Appeals for the Ninth Circuit has decided. The court followed a 2012 opinion by the U.S. Court of Appeals for the Seventh Circuit in determining that the HAMP documents were contradictory but were to be interpreted in favor of the consumers. Corvello v. Wells Fargo Bank, NA (9thCir) is at ¶101-427.

FHFA to block use of eminent domain to restructure mortgages
The Federal Housing Finance Agency essentially has drawn a line in the sand in its effort to prevent local governments from using their eminent domain authority to restructure mortgage loans owned or insured by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (the GSEs). Asserting that such action by local governments would present “a clear threat” to the safe and sound operations of the GSEs and be contrary to the purpose of the Fannie Mae and Freddie Mac conservatorships, the FHFA has made clear its willingness to use its legal authority to block local governments from using their eminent domain authority and punish communities that do so. The statement is at ¶152-599.

Challengers to constitutionality of Dodd-Frank lacked standing
A federal district court has dismissed a case that claimed certain provisions of the Dodd-Frank Act were unconstitutional on a number of grounds because the plaintiffs lacked standing. The grounds alleged by the plaintiffs included separation of powers, the appointments clause, and the due process clause. The court denied standing on a number or reasons, including that the plaintiffs had not faced any adverse rulings; had not had agency action been directed against them; and had not suffered any actual harm. The challenge was brought by State National Bank of Big Spring (SNB); the 60 Plus Association, a “non-partisan seniors advocacy group with a free enterprise, less government, less taxes approach to seniors issues”; the Competitive Enterprise Institute (CEI), a non-profit public policy organization dedicated to advancing the principles of limited government, free enterprise, and individual liberty; and the states of Alabama, Georgia, Kansas, Michigan, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Texas, and West Virginia. State National Bank of Big Spring v. Lew (DC DofC) is at ¶101-423.

Fed debit card rules rejected by federal district court
The Federal Reserve Board’s rules on debit card interchange fees and network routing restrictions have been voided by the U.S. District Court for the District of Columbia. The rules being challenged were adopted by the Fed to implement a section of the Dodd-Frank Act known as the “Durbin Amendment” after its sponsor, Sen. Richard Durbin (D-Ill). An emphatically worded opinion made clear the judge’s belief that the Fed had disregarded the Dodd-Frank Act provisions on several key points to such a degree that the judge went beyond enjoining enforcement of the rules to vacate them and order the Fed to adopt new rules. NACS v. Board of Governors of the Federal Reserve System (DC DofC) is at ¶101-422.

Consumer Credit Guide

Mortgage loan servicer was exempt from TILA disclosure duties
A mortgage loan servicer that accepted an assignment of a mortgage strictly to facilitate a foreclosure was exempt from the federal Truth in Lending Act requirement that it notify the consumers of the assignment, according to the U.S. Court of Appeals for the Eleventh Circuit. The assignment was covered by the “administrative convenience” exemption, the court decided. Reed v. Chase Home Finance, LLC (11th Cir.), ¶52,516.

ECOA discrimination suit could not be settled by proposed class
A proposed class of 153,000 African-American and Hispanic borrowers suing for alleged mortgage loan pricing discrimination could not establish that members of the class all shared a common question of law or fact, the U.S. Court of Appeals for the Third Circuit determined. The court affirmed a federal district court’s decision to refuse to certify a class to proceed with a negotiated settlement of the proposed class action because the class representatives could not show that there was a lender policy that affected all of the class members “in roughly the same manner.” Rodriguez v. National City Bank (3d Cir.), ¶52,520.
Texas state claim against mortgage loan servicer survives FDCPA dismissal In connection with the claims of two mortgage borrowers against a mortgage loan servicing company for alleged violations of the Texas Debt Collection Act (TDCA), the U.S. Court of Appeals for the Fifth Circuit ruled that one of the TDCA claims could proceed, despite the trial court’s dismissal of the borrowers’ comparable claims arising under the federal Fair Debt Collection Practices Act. In reaching its decision, the Fifth Circuit noted that the TDCA’s definition of a “debt collector” is broader than the FDCPA’s definition. The federal appellate court also affirmed the dismissal of claims brought by the mortgage borrowers under the Texas Deceptive Trade Practices Act and Texas common law. Miller v. BAC Home Loans Servicing, L.P. (5th Cir.), ¶52,522.

Federal and state debt collection claims not barred by California’s litigation privilege
A cause of action under California’s Unfair Competition Law (Cal. UCL), brought by a district attorney on behalf of the People of the State of California and alleging violations of federal and state debt collection laws against a debt collection company and its two attorneys, was not barred by California’s litigation privilege. In reversing the judgment of the California trial court, the California Court of Appeal recognized an exception to California’s litigation privilege and determined that, since the debt collection conduct at issue was specifically prohibited by California’s Rosenthal Fair Debt Collection Practices Act and the federal Fair Debt Collection Practices Act, the Cal. UCL claims based on that prohibited conduct could proceed. People of the State of California v. Persolve, LLC (Cal. App.), ¶52,524.

State Law Update

Illinois: Amendments to the Payday Loan Reform Act and Consumer Installment Loan Act allow the Department of Financial and Professional Regulation (DFPR) to set rules for the imposition and amount of fines. The law is at Illinois ¶6709 and ¶7136.

New York: An amendment to the General Business Law provision governing credit card information requires the Department of Financial Services (DFS) to provide certain information on its website. The amendments also establish revised requirements for credit card issuers in connection with the notice currently mandated for solicitations, applications, and monthly billing statements. The law is at New York ¶6234I.

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:
• North Carolina: Predatory Lending Law.

Secured Transactions Guide

Trustee’s sale of collateral did not trigger notice requirements
A bank was not required by Nevada law to provide notice to a debtor prior to the sale of encumbered vehicles that were part of a co-obligor’s bankruptcy estate. As a result, the bank was entitled to submit a secured claim for the deficiency balance remaining after the sale of the co-obligor’s vehicles against the debtor’s bankruptcy estate. The debtor, a co-obligor on a debt that was secured by nearly all of the obligors’ assets, objected to the bankruptcy trustee’s distribution to the bank of the proceeds of the bankruptcy trustee’s sale of the debtor’s assets to a third party. The debtor argued that the bank failed to comply with the repossession and notice procedures required by Nevada law, which requires that a secured party must give at least 10 days’ written notice of its intent to sell or lease a repossessed vehicle to anyone liable on the security agreement. The bank was under no obligation to provide notice to the debtor prior to the sale of the vehicles. The law, by its terms, establishes two “triggers” for the notice requirement: (1) repossession; and (2) a secured creditor disposing of the assets. The bank neither repossessed nor sold the vehicles. Thus, the bank was entitled to any proceeds from the sale of the debtor’s assets. In re Reno Snax Sales, LLC; In re Reno Snax Sales, LLC v. Heritage Bank of Nevada (B.A.P. 9th Cir.), ¶56,326.

Article 9 does not determine priority of interests in insurance premiums 
The U.S. Court of Appeals for the Sixth Circuit has held that the specific priority rules of the Tennessee Premium Finance Act preempt the more general priority rules of Article 9 of the Tennessee UCC. As a result, a bank that provided financing for a debtor’s insurance premiums held a superior security interest in the funds the bank deposited in the insurance broker’s deposit account at another bank. The banks each claimed a security interest in funds held in an account at the depository bank. The account’s owner, an insurance broker, held the money, which it had received from the lending bank, in trust as part of an insurance deal. After the depository bank took the contested money and applied it to a debt the insurance broker separately owed it, the lending bank sued the depository for conversion. Tennessee’s Premium Finance Company Act gives banks and other entities a perfected security interest in any premiums financed that is superior to other claims, while Section 9-327 of the Tennessee UCC provides that a security interest held by the bank with which the deposit account is maintained has priority over a conflicting security interest held by another secured party. The court concluded the specific priority rules of the Premium Finance Company Act applied. American Bank, FSB v. Cornerstone Community Bank (6th Cir.), ¶56,328.

Loan agreement created valid security interest in debtor’s vehicle
A creditor that failed to properly perfect its security interest in all of a debtor’s intellectual property (IP) assets could not submit a secured claim against the debtor’s bankruptcy estate for the debtor’s remaining IP assets, the U.S. Bankruptcy Court for the Northern District of Texas has held. In addition, because the security interest was unperfected at the time of the debtor’s filing for bankruptcy protection, the debtor could also avoid the creditor’s unsecured claim. The loan agreement granted the creditor a lien and security interest in the debtor’s patent applications and related assets. An additional document granted the creditor a senior security interest in all of the debtor’s IP assets. The creditor filed a UCC-1 financing statement that described only the patent applications as collateral. Thus, the language in the financing statement was insufficient to give third parties notice that the creditor claimed an interest in “all other intellectual property.” As a result, the debtor could avoid the unperfected lien as a hypothetical lien creditor. In re ProvideRx of Grapevine, LLC; CERx Pharmacy Partners, LP v. Provider Meds, LP (BankrNDTex) (Bankr. N.D. Tex.), ¶56,327.

State Update

Colorado: The Colorado Secretary of State published final UCC filing office rules relating to definitions, acceptance and refusal of documents, 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 Colorado, ¶1402.

Massachusetts: In order to reflect changes in UCC filing requirements included in the amendments to Revised Article 9 that were effective July 1, 2013, Massachusetts has published final UCC regulations. The final 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 Massachusetts, ¶1311.

North Carolina: The North Carolina Division of Motor Vehicles must implement a statewide electronic lien system to process the notification, release, and maintenance of security interests and certificate of title data by July 1, 2014. The law appears at North Carolina, ¶1019A.

Virginia: Virginia has published final regulations in order to reflect changes in UCC filing requirements included in the amendments to Revised Article 9 that were effective July 1, 2013. The final regulations allow UCC search requests to be delivered by electronic delivery method provided and authorized by the filing office and also allow the filing office to accept payment via electronic funds, as well as allow a filing office to void a filing if the filing fee payment is dishonored, unpaid, or otherwise rejected for any reason. The regulations begin at Virginia, ¶1302.

Product Enhancements

Secured Transactions Smart Charts—New Topic, Smart Chart Added
In 2010, the Uniform Law Commission and American Law Institute proposed amendments to Revised Article 9 with a uniform effective date of July 1, 2013. The amendments revised definitions, rules of perfections and priority, the form and contents of financing statements, and the effectiveness of certain filings, while adding a new Part 8 to address the transition period for the new amendments.

Secured Transactions Topics Smart Chart—New Revised Article 9 Topic. To coincide with the updates, a new topic has been added to the existing Secured Transactions Topics Smart Chart. The new Revised Article 9 topic reflects all of the uniform sections of Revised Article 9, including those amended, along with the corresponding state law sections, updated local modifications, and revised explanations. The format will allow practitioners to easily search and compare uniform law sections across multiple jurisdictions. The new topic covers 51 jurisdictions (50 states, plus District of Columbia), with links to source and explanations material (laws, regulations, and explanations) in the Secured Transactions Guide.

Secured Transactions Revised Article 9—2013 Amendments Smart Chart. In addition, a new Smart Chart has been added that will allow practitioners to quickly determine which sections of the 2013 amendments were enacted in each jurisdiction and when. The Smart Chart will allow practitioners to link to the enacted law sections in each state, providing easy access to primary source material. The new Smart Chart covers 51 jurisdictions (50 states, plus District of Columbia), with links to the primary source material in the Secured Transactions Guide.

Revised Article 9 Local Modifications Updated
The local modifications found within the Uniform Commercial Code—Revised Article 9 Secured Transactions division have been updated to reflect the amendments to Revised Article 9 that were proposed by the Uniform Law Commission and American Law Institute in 2010. The local modifications compare the text of the uniform law to the text of the law as enacted by each jurisdiction, allowing practitioners to quickly determine the differences between the uniform law and the law of a particular jurisdiction.

Financial Privacy Law Guide

TCPA permits later withdrawal of consent to autodialed calls
A consumer who consented to receiving automated telephone calls on her cell phone when she applied for a line of credit could later revoke that consent, the U.S. Court of Appeals for the Third Circuit has decided. The Telephone Consumer Protection Act (TCPA) gives consumers the right to revoke consent and does not restrict when that revocation can happen, the court said. A story on Gager v. Dell Financial Services, LLC (3rd Cir.) appeared in Privacy Extra, Aug. 30, 2013.

Federal statute of limitations trumps state law in TCPA suit
An individual’s claim under the Telephone Consumer Protection Act (TCPA) against a media company for sending him an unsolicited commercial fax was not time-barred by the two-year Connecticut statute of limitations because the four-year federal statute of limitations as codified at 28 U.S.C. §1658(a) applied; however, the lower court’s judgment of dismissal was affirmed because the American Pipe tolling rule extended only through the denial of class status in the first instance by a federal district court, the United States Court of Appeals for the Second Circuit has decided on remand from the Supreme Court. Giovanniello, v. ALM Media, LLC (2ndCir) at ¶100-641.

ATM notice violation suit based on “informational injury”
A consumer who claimed he had not received the required notice of fees during automated teller machine transactions could sue the machines’ owners for statutory damages based solely on an “informational injury,” the U.S. Court of Appeals for the Eighth Circuit has decided. The consumer satisfied the constitutional requirements for standing even if he had not suffered any pecuniary injury, the court determined. Charvat v. Mutual First Federal Credit Union (8thCir) is at ¶100-640.

State Law Update

Illinois: A new law provides that a guardian of a disabled person, or a parent or guardian of a minor may request that a consumer reporting agency (CRA) place a security freeze on the credit report of the disabled person or minor by sending a request to the consumer reporting agency. The guardian of a disabled person must be appointed under the Guardians for Disabled Adults Article of the Probate Act of 1975. The guardian of a minor must be appointed under Article XI of the Probate Act of 1975 or the Juvenile Court Act of 1987. This story appears in Privacy Extra, Aug. 30, 2013.

New York: A new law eliminates the requirement that an automated teller machine (ATM) operator must post a sign that a fee is imposed for the use of the machine as well as the amount of the fee. However, an ATM operator must continue to provide notice on the ATM screen or on a paper issued from the machine after the financial transaction is initiated, but before the consumer is irrevocably committed to completing the transaction: that a fee is imposed for the use of the machine; the amount of the fee; and that the consumer may cancel the transaction without being assessed a fee. The purpose of the legislation is to bring state law into conformity with current provisions of federal law relating to ATM fee disclosure requirements. This story appears in Report No. 146, Aug. 16, 2013.

North Dakota: North Dakota has amended its Criminal Code section penalizing the unauthorized use of personal identifying information (PII) to include the following in the definition of PII: 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. The explanation is at ¶64-151; the law begins at ¶64-501.