The CFPB. What Lenders And Servicers Must Know. Joseph M. Welch, Esq.

Transcription

1 The CFPB What Lenders And Servicers Must Know Jason E. Goldstein, Esq Von Karman Avenue, Suite 800 Irvine, California (949) Joseph M. Welch, Esq Von Karman Avenue, Suite 800 Irvine, California (949)

2 DISCLAIMER This presentation is intended to be an introduction to, and overview of, the CFPB, including particular provisions affecting lenders and servicers. It is not meant to constitute legal advice applicable to all situations.

3 What Is The CFPB? CFPB was created by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 as The Bureau Of Consumer Financial Protection in response to the recession and financial crisis of the late 2000s. The CFPB consolidates most of the consumer financial protections of 7 federal agencies: Federal Reserve FDIC (Federal Deposit Insurance Corporation) FTC (Federal Trade Commission) HUD (Department of Housing and Urban Development) NCUA (National Credit Union Administration) OCC (Office of the Comptroller of the Currency) OTS (Office of Thrift Supervision) Richard Cordray, CFPB s Director, was the Ohio attorney general from and is credited for winning $2 billion dollars in settlements from financial companies.

4 What is the CFPB s purpose? According to the United States Treasury Department, the CFPB promote[s] fairness and transparency for mortgages, credit cards, and other customer and financial products and services. Per CFPB s own website, The central mission of the [CFPB] is to make markets for consumer financial products and services work for Americans whether they are applying for a mortgage, choosing among credit cards or using any number of the consumer financial products.

5 What Products are Regulated by the CFPB? Coming soon: Prepaid Cards

6 Limitations on CFPB Rulemaking? CFPB is subject to the Administrative Procedures Act and must follow notice and comment procedures for rule making adjudication. CFPB is limited by statute in its rule making power. Title X of the Dodd Frank Act: (a) requires that the CFPB make particular findings in order to exercise its authority to restrict or prohibit acts and practices as unfair, deceptive or abusive; and (b) prohibits the CFPB from imposing usury caps and from regulating non financial businesses. CFPB rulemaking is subject to review by the Financial Stability Oversight Council. CFPB is subject to oversight by Congress itself.

7 Who Is Subject To The CFPB? YOU AND YOU AND YOU! CFPBhas primary enforcement authority over banks, thrifts and credit unions and other depository institutions with $10 billion and up in assets while legacy regulators retain backup authority. Prudential Regulators maintain primary examination and enforcement authority over smaller entities. CFPB rules are still binding. CFPB may subject a non bank covered person to full CFPB supervision on grounds that it has engaged or is engaging in conduct that poses risks to consumers.

8 How Many Complaints Does The CFPB Receive? Has This Changed Over Time? Source: Consumer Response Annual Report (January 1 December 31, 2013)

9 What General Types Of Complaints Did The CFPB Receive In 2013? Source: Consumer Response Annual Report (January 1 December 31, 2013)

10 What Specific Types Of Complaints Did The CFPB Receive In 2013 That Related To Mortgages? Source: Consumer Response Annual Report (January 1 December 31, 2013)

11 What Happens After The CFPB Receives A Complaint Against You? Answer: The Process Begins

12 What is the Process? Source: Consumer Response Annual Report (January 1 December 31, 2013)

13 What Are The Results Of The Complaints To The CFPB? Source: Consumer Response Annual Report (January 1 December 31, 2013)

14 RESPA & TILA: The Top Ten 1. Mortgage Servicing Transfers 30 day disclosure 60 day no late payment 2. Error Resolution Procedures and Requests for Information Must be in writing and servicing related QWR or Notice of Error issues 3. Forced Placed Insurance Reasonable basis standard Required notices

15 RESPA & TILA: The Top Ten 4. General Servicing Policies and Procedures Designed to achieve consumer protection goals. 5. Early Intervention Requirements 36 day rule 45 day rule 6. Continuity of Contacts Personnel available to respond to inquiries by 45 th day No civil liability for violations

16 RESPA & TILA: The Top Ten 7. Loss Mitigation Procedures. 5 day acknowledgement Must identify additional information needed Foreclosure cannot be initiated until 121 st day of delinquency 8. ARM Disclosures. Initial interests rate adjustments disclosed 210 days before effective date Subsequent disclosures 60 days before effective date (two exceptions)

17 RESPA & TILA: The Top Ten 9. Credit Secured By Dwelling Must promptly credit periodic payments as of the date of receipt (unless delay will not result in negative credit reporting or late fee) Payoff statements must be provided within 7 days of written request Partial payment application guidelines 10. Periodic Statements for Residential Mortgage Loans Prompt mailing requirement 4 days after close of courtesy period of prior billing cycle Consumer opt outs

18 CFPB Rules Create Conflict in Bankruptcy Servicers faced with incompatible risks: Communicate with borrowers in bankruptcy and run the risk of violating the automatic stay or discharge injunction; or Refuse to communicate with borrowers in bankruptcy and run the risk that bankruptcy does not excuse the servicer for failure to comply with CFPB regulations. Initially, CFPB Required Statements to Bankrupt Debtors as Necessary: CFPB initially rejected bankruptcy concerns in favor of providing bankrupt debtors information about required payments. CFPB suggested by preamble only that servicers may provide a sufficient disclaimer to avoid bankruptcy risks/sanctions.

19 CFPB Issues Bankruptcy Exemptions Following major concerns by bankruptcy trustees, the CFPB issued an exemption dated October 15, 2013 (56 pages) that amended Regulations X (RESPA) and Z (TILA). The exemption stays the effective date for the early intervention and periodic statement requirements while borrowers are in bankruptcy (narrowly considered).

20 Complying with Reg. Z Requirements in Bankruptcy Several requirements potentially impact consumer protections afforded under the Bankruptcy Code: The Amount Due must be shown more prominently than any other disclosures on the page (including bankruptcy disclaimer). The mandatory explanation of the amount due must include any past due amounts. Requirement to include a delinquency notice for any consumer more than 45 days delinquent.

21 Suggested Guidelines for Statements: Content - Content: Make sure the content of the communication is limited to information the consumer needs and presented in a way that does not pressure the debtor or imply the consumer must take some action. o Carefully Tailored Language. In re Whitaker, 2013 WL (Bankr. E.D. Tn. 2013) ( While disclaimer language in a communication to a debtor who has received a discharge is always advisable, its absence does not automatically render the communication a per se violation of the discharge injunction ). In Whitaker, the statement only listed the principal balance, escrow balance and tax advances. The statement did not contain a demand for payment, it also did not indicate that any amount is due ). o Disclaimers: No mandatory language required but no safe harbor. Must explain how the consumer can request statements be stopped and don t harass.

22 Suggested Guidelines for Statements: Circumstances - Circumstances: The content is to be evaluated in light of the circumstances showing the particular consumer needed the information. o Post discharge (cases suggest no one cares to know about a discharged debt; no statements, regardless of disclaimers). o Chapter 7: following a statement of intention to surrender. o Chapter 13: where trustee is conduit for all payments. o Co debtor stays under section 1301 and phantom discharges.

23 Notable Settlements/Orders Ocwen Ocwen Financial Corporation, and its subsidiary, Ocwen Loan Servicing, ordered to: Provide $2 billion in principal reduction to underwater borrowers. Refund $125 million to the nearly 185,000 borrowers who have already been foreclosed upon. Adhere to significant new homeowner protections. [Source: state authorities order ocwen to provide 2 billion in relief tohomeowners for servicing wrongs/]

24 Notable Settlements/Orders Ocwen The allegations: Servicing errors, including failure to apply payments made, pushed borrowers into foreclosure. Unauthorized fees for default related services, including forcedplaced insurance when borrower already had insurance. Providing false information in response to consumer complaints. Improperly denying loan modifications. [Source: state authorities order ocwen to provide 2 billion in relief tohomeowners for servicing wrongs/]

25 Notable Settlements/Orders Bank of America $727 million in consumer relief for alleged deceptive marketing of credit card services and allegedly unfair business practices 1 st Alliance Lending, LLC $83,000 penalty for splitting real estate settlement fees but self reported, which mitigated damages Fidelity Mortgage Corporation $81,076 penalty for funneling illegal kickbacks to a bank in exchange for real estate referrals $27,076 deposited with the U.S. Treasury, $54,000 to the CFPB. [Source:

26 Notable Court Cases United States District Court for the Central District of California Judge holds that, the CFPB complies with the separation of powers principles contained in Articles I, II, and III of the, Constitution, although other Constitutional attacks may remain. CFPB v. Morgan Drexen, et al., No (C.D. Cal. Jan. 1, 2014). Claims regarding forced placed insurance that occurred prior to January 10, 2014 effective date of CFPB rule are non actionable. Ali v. Wells Fargo Bank, N.A. (W.D. Okla. Jan 24, 2014) 2014 WL Damages available as to alleged failures to fairly offer and negotiate loss mitigation options and dual tracking, but injunctive relief is not available. Cataldi v. New York Community Bank (N.D. Ga. Feb. 3, 2013) 2014 WL

27 The CFPB What Lenders and Servicers Must Know Jason E. Goldstein, Esq Von Karman Avenue, Suite 800 Irvine, California (949) Joseph M. Welch, Esq Von Karman Avenue, Suite 800 Irvine, California (949)