Fair Lending TILA and RESPA Integrated Disclosures ( TRID ) and Consumer Financial Protection Bureau ( CFPB )

Transcription

1 Fair Lending TILA and RESPA Integrated Disclosures ( TRID ) and Consumer Financial Protection Bureau ( CFPB ) Presented by Anthony J. Sylvester, Esq. Craig L. Steinfeld, Esq. Sherman Wells Sylvester & Stamelman LLP

2 Overview TRID TILA and RESPA Integrated Disclosure Forms Purpose of TRID is to simplify applications for consumer mortgages Discussion will provide brief history and current status Consumer Financial Protection Bureau ( CFPB ) and recent challenge to CFPB authority

3 History of TRID TILA and RESPA forms were originally developed by two different federal agencies under two federal statutes Information on the TILA and RESPA forms was overlapping and the language was inconsistent As a result, consumers found forms confusing; lenders found forms burdensome

4 History of TRID Under the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank ), the Consumer Financial Protection Bureau ( CFPB ) was required to integrate the TILA and RESPA mortgage loan disclosures In November 2013, the CFPB finalized a rule with the new, integrated disclosures Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z) (the TILA-RESPA Rule ) 15 USC 1604(b) and 12 CFR 1026

5 History of TRID In February and July 2015, the CFPB issued final rules that modified the 2013 TILA-RESPA Rule Became effective for applications from a consumer for closed-end credit transactions secured by real property on or after October 3, 2015 Creditor or mortgage broker required to provide the new integrated disclosures

6 Transactions Covered By TRID Most closed-end consumer transactions secured by real estate are subject to TRID Loans made by a creditor as defined in 12 CFR (a)(17) (generally a person or company that regularly extends credit) The following are not subject to TRID: Home equity lines of credit Reverse mortgages Loans secured by mobile homes or dwelling not attached to real estate

7 Transactions Covered By TRID Certain loans currently subject to TILA but not RESPA are subject to TRID: Construction-only loans Loans secured by vacant land or by 25 or more acres

8 TRID Obligations Combines prior 4 forms required by TILA and RESPA into 2 forms: Good Faith Estimate and initial Truth-in-Lending disclosure combined into new Loan Estimate HUD-1 and final Truth-in-Lending disclosure combined into new Closing Disclosure

9 TRID Obligations Loan Estimate Good-faith estimate of credit costs and transaction terms Required within 3 business days ofreceipt of application Must be in writing and contain the information required by the regulations Generally, must use the standard model form Can only be corrected or revised to reflect increased charges in certain situations as set forth in the regulations

10 TRID Obligations Closing Disclosure Reflects actual terms and costs of the transaction Required to be delivered no later than 3 business days prior to consummation of the loan Must be in writing and contain the information required by the regulations Generally, must use the standard model form Must provide corrected disclosure if actual terms or costs change prior to consummation may require additional 3-day waiting period in certain circumstances

11 CFPB Established by Dodd-Frank July 2011 Consolidates most federal consumer financial protection authority in one place January 2012 President Obama appointed Richard Cordray as first Director of CFPB Recess appointment Confirmed July 2013 by Senate to 5-year term

12 CFPB Core functions: Write rules, supervise companies and enforce federal consumer protection laws Restrict unfair, deceptive or abusive acts or practices Take consumer complaints Promote financial education Research consumer behavior Monitor financial markets for new risks to consumers Enforce laws that outlaw discriminatory and other unfair treatment in consumer finance

13 PHH Corp v. CFPB Challenge to authority and constitutionality of CFPB Pending before the Court of Appeals for the DC Circuit, Docket No Oral argument on Case challenges CFPB s imposition of $109 million penalty for RESPA violations

14 PHH Corp v. CFPB In January 2014, CFPB charged PHH with violations of RESPA 8(a) and 8(b) Charges related to PHH s referral of mortgage insurance business to mortgage insurers in exchange for reinsurance contracts with PHH s wholly-owned subsidiary CFPB alleged premiums for reinsurance not for services actually furnished/performed and greatly exceeded value essentially a kickback scheme

15 PHH Corp v. CFPB PHH claims exempt under RESPA 8(c)(2) payments for actual services performed not kickbacks PHH also claims practices were the same as those deemed permitted by HUD in a 1997 letter interpretation of RESPA 8(c) consistent with HUD subsequent interpretations

16 PHH Corp v. CFPB ALJ rejected PHH s RESPA 8(c)(2) defense ALJ agreed captive reinsurance generally permitted if payments for services furnished/performed and are bona fide and do not exceed value of services ALJ also ruled violations limited to loans closed 3 years prior to CFPB s creation in July 2011 According to ALJ, premiums PHH received were not bona fide and exceeded the FMV of the services performed ALJ required disgorgement of $6.4 million in premiums

17 PHH Corp v. CFPB Both PHH and CFPB appealed ALJ s decision to CFPB Director Richard Cordray first appeal of administrative enforcement proceeding before the CFPB Cordray decision dated June 4, 2015 Cordray rejected both PHH s and ALJ s interpretation of RESPA 8(c)(2) Cordray held that payments must be bona fide to be lawful i.e., not tied in any way to referral of business

18 PHH Corp v. CFPB Cordray determined that PHH s reinsurance payments violated RESPA because they were tied to business referrals Cordray also found that 1997 HUD letter inconsistent regarding interpretation of RESPA 8(c)(2) as exemption Cordray also disagreed with ALJ s limitation to premiums for loans closed within 3-year limitations period after creation of CFPB required disgorgement of all premiums received after July 2008, not just those received from loans that closed after July 2008 Ordered disgorgement of $109 million in premiums Also prohibited PHH from entering into any affiliated reinsurance agreement for 15 years

19 PHH Corp v. CFPB PHH challenged CFPB s rulings regarding RESPA 8(c)(2) and the statute of limitations before the D.C. Circuit PHH also argued that the CFPB is unconstitutional

20 PHH Corp v. CFPB Authority vested in single Director who can only be removed by the President for cause Not directly answerable to Congress because funded through Federal Reserve System Legislative, Executive and Judicial power all in a single person

21 PHH Corp v. CFPB Leading up to the argument on , Court asked for additional briefs on constitutionality of CFPB Much of the oral argument focused on the constitutionality issue

22 PHH Corp v. CFPB Court appeared troubled by CFPB s structure Appeared to acknowledge same concerns raised by PHH regarding concentration of powers in single person who is not answerable to President or Congress

23 SHERMAN WELLS SYLVESTER & STAMELMAN LLP 210 Park Avenue, 2 nd Floor, Florham Park, NJ Anthony J. Sylvester, Esq. Partner asylvester@shermanwells.com Craig L. Steinfeld, Esq. Partner csteinfeld@shermanwells.com

24 Anthony J. Sylvester is a founding partner of Sherman Wells Sylvester & Stamelman LLP. He has practiced law in New Jersey and New York as a commercial litigator for 30 years. He has a diverse New Jersey Chancery and Law Division and New York Supreme Court practice and Federal Court commercial litigation practice. Anthony has substantial experience representing financial institutions in complicated, high-stakes litigation. In particular, he has handled numerous loan recovery and workouts and litigated commercial foreclosure proceedings in New Jersey and New York, a number of which concluded with sheriff's sales. Anthony also has long-standing and significant experience in defending banks, financial institutions and mortgage servicers against consumer finance based claims. This includes claims brought under Articles 3 and 4 of the Uniform Commercial Code, the Fair Credit Reporting Act, the Truth in Lending Act, RESPA, HOEPA, and state consumer fraud statutes as well as claims for unfair lending and/or business practices. He has defended consumer finance class actions in both State and Federal Court. Anthony J. Sylvester Partner asylvester@shermanwells.com Anthony has been named among the top banking lawyers in New Jersey by Best Lawyers in America, a peer review of US Lawyers. Best Lawyers named him the 2014 Banking and Finance Litigation "Lawyer of the Year" for the Newark region. He has served as the New Jersey State Editor of CarLaw ( and HouseLaw ( monthly legal reports for the lending industry published by the Consumer Credit Compliance Company. Anthony is also a member of the Conference on Consumer Finance Law. In addition to his work for financial institutions, Anthony has also for many years maintained a wide-ranging state and federal court commercial litigation practice for clients in other industries. He regularly appears on behalf of these clients in courts in various vicinages in New York and New Jersey State and Federal Courts. Benchmark Litigation named him a "Local Litigation Star" in its Definitive Guide to America's Leading Litigation Firms and Attorneys. Thompson Reuters has included him on New Jersey's "Super Lawyers" list.

25 Craig L. Steinfeld is a Partner in Sherman Wells Sylvester & Stamelman LLP where he concentrates his practice in commercial litigation and has substantial experience representing financial institutions in matters including loan recovery and workouts, commercial foreclosure proceedings, negotiable instruments, commercial transactions and fidelity bond claims. Admitted to practice in New Jersey and before the United States District Court for the District of New Jersey and the District of Columbia Court of Appeals, Craig is Chair and a member of the Board of Directors of the Banking Law Section of the New Jersey State Bar Association. Among his representative matters, he wrote the appellate brief in support of the argument that federal law preempts state law with respect to certain attorney's fees that lenders may pass on to borrowers, which served as the basis for a New Jersey Supreme Court decision that overturned the rulings of the trial court and appellate division (Turner v. First Union National Bank, et al., 162 N.J. 75 (1999)). Craig received his B.S. from the University of Delaware and his J.D. from Rutgers University School of Law. Craig L. Steinfeld Partner csteinfeld@shermanwells.com