Remember to update the Ohio Homebuyers’ Protection Act form for 2017

Residential Mortgage lenders should be mindful to not forget to update their Ohio Homebuyers’ Protection Act Informational Document with the 2017 prepayment penalty adjustment. Beginning January 1, 2017, no mortgage broker, loan officer or nonbank mortgage lender may charge a penalty for the prepayment or refinancing of a residential mortgage obligation secured by a first lien if the loan amount is less than $88,503. See Ohio Revised Code 1343.011(C)(2).

The Ohio Homebuyers’ Protection Act Informational Document is required by Ohio Revised Code 1345.05(G). An acknowledgement of the consumer’s receipt must be retained by the lender, mortgage broker and loan officer, as applicable. The Ohio Attorney General and the Department of Commerce may examine your records to ensure that you are providing the most current version of this document to consumers with the 2017 adjusted amount. The updated form can be found here. The rule regarding distribution and receipt of the Informational Document can be found here.

Also, don’t forget that Nationwide Multistate Licensing System & Registry (NMLS) renewal season started November 1.  If you have any NMLS or state-licensing questions or issues, please contact us.

  

Consumer Lending and Services, Fair Lending, Legal Developments, State Regulatory

Texas OCCC issues advisory bulletin regarding amended MLA rule

Starting today, October 3, 2016, pawnshops nationwide will be obligated to follow the recently updated Military Lending Act (MLA) rule. In response to the release of the amended MLA and updated exam procedures by the Consumer Financial Protection Bureau, the Texas Office of Consumer Credit Commissioner (OCCC) issued an advisory bulletin summarizing the MLA’s requirements for Texas pawnbrokers. The guidance contains 20 questions and answers regarding the new regulations on loans involving military personnel.

Two noteworthy points for Texas pawnbrokers are addressed in the bulletin. First, Texas pawnshops are now required to have a written policy detailing how a person’s covered borrower status is determined. Additionally, an existing pawn loan that is extended in accordance with Texas law by having the borrower sign a memorandum of extension will not be considered to be a new loan or renewal that triggers the disclosure requirements of the MLA. However, the OCCC may modify its guidance if the Department of Defense decides otherwise.

Pawnbrokers make up a segment of the financial services industry that will be affected by these new rules under the Military Lending Act. Attorney, Jackie Mallett recently hosted a webinar discussing the amended rules and how they will affect the pawn industry. View the webinar in its entirety here

Consumer Lending and Services, Fair Lending, Federal Regulatory, Non-Depository Institutions

Amended Military Lending Act goes into effect on October 3; CFPB releases updated exam procedures

Today, September 30, 2016, the Consumer Financial Protection Bureau (CFPB) identified the updated exam procedures it will use to audit lenders who do business with military personnel. According to CFPB Director Richard Cordray, “[t]he updated exam procedures…will help ensure that servicemembers and their families are dealt with in a fair and safe manner when attempting to access credit.” Specifically, the requirements prohibit interest rates above 36 percent MAPR, mandatory waivers of consumer protection laws and mandatory allotments.

In its press release, the CFPB vows to strictly monitor financial institutions, their compliance programs and their “overall efforts to follow the rule’s requirements.” Evaluating everything from staff training to loan implementation, the CFPB will use the new rules to prevent substantial consumer harm. The updated Military Lending Act rules go into effect on October 3 for creditors. Credit card companies must be prepared to comply with the new rules by October 3, 2017.

Pawnbrokers make up a segment of the financial services industry that will be affected by these new rules under the Military Lending Act. Attorney, Jackie Mallett recently hosted a webinar discussing the amended rules and how they will affect the pawn industry. View the webinar in its entirety here

Compliance Management, Consumer Lending and Services, Depository Institutions, Fair Lending, Federal Regulatory, Non-Depository Institutions

Mallett to speak on military lending at NACCA event in Tulsa

Spotlighting the importance of compliance with the Military Lending Act and other unique regulations associated with lending to members of the armed forces, Bricker & Eckler attorney Jackie Mallett will be presenting “Military Lending Boot Camp” at the National Association of Consumer Credit Administrators (NACCA) 29th Annual Consumer Services and Examiners’ School. The event takes place September 26-30, 2016, in Tulsa, Oklahoma. For information, visit the event webpage.

Consumer Lending and Services, Fair Lending

Announcing our Cybersecurity Law blog

Readers of the Financial Services Law blog are invited to visit our newly-launched Cybersecurity Law blog, an online resource featuring news, information and legal analysis on current cybersecurity and data breach issues. Articles and posts, authored by Bricker & Eckler attorneys, share in-depth insights and legal implications on topics that have both local and global significance.  

We encourage you to subscribe to the blog via FeedBurner to have frequent updates sent directly to your inbox. Additionally, be sure to visit the blog and bookmark the site for easy reference. 

Compliance Management, Consumer Lending and Services, Depository Institutions, Fair Lending, Federal Regulatory, Federal Regulatory, Legal Developments, Non-Depository Institutions, State Regulatory

When a logo is a “no go” on the new Home Loan Toolkit

There is a right way and a wrong way to customize the new Home Loan Toolkit, according to a Consumer Financial Protection Bureau (CFPB) representative who spoke at Bricker & Eckler’s Midwest Financial Services Regulatory and Compliance Conference in Columbus, Ohio, on August 20, 2015. The right way complies with Section 8 of the Real Estate Settlement Procedures Act (RESPA). But beware: the wrong way is considered a RESPA kickback.

Beginning October 3, the Home Loan Toolkit replaces the Special Information Booklet currently given to loan applicants who apply for a mortgage. The new toolkit is required by the Dodd-Frank Act and its regulations — 12 U.S.C. § 2604, 12 C.F.R. §1024.6 and 12 C.F.R. § 1026.19(g).

Companies will be allowed to place their logo on the front cover of the new toolkit. The CFPB’s instructions for adding a logo are available here. Of course, real estate professionals and title companies want to capitalize on this marketing opportunity by emblazoning the toolkit cover with logos galore — title company logos, real estate agent logos, lender logos and mortgage broker logos, to name a few. Suddenly, a seemingly lawful marketing opportunity created by the CFPB itself becomes a major compliance risk. Luckily, the CFPB has provided some rare written guidance on the issue.

The CFPB says that a title company may lawfully place its own logo on the front cover of the toolkit and provide copies to a real estate professional or mortgage broker who, in turn, gives them to consumers shopping for a home. This marketing is not a Section 8 RESPA violation as long as the title company provides its branded toolkit at no cost to the real estate professional or mortgage broker, without any conditions requiring the referral of business, and without retaining any control over whether or how the toolkit will be distributed.

A title company crosses the line, however, and violates Section 8 of RESPA when it places another company’s logo on the front cover of the toolkit and provides free copies to the other company to give to consumers shopping for a home. The title company is essentially paying for the other company’s marketing materials.

In both scenarios, the title company is providing the toolkit to another company free of charge. But, in the first scenario, the title company is putting its own logo on the toolkit, which the CFPB considers “normal promotional and educational activities” permitted under 12 C.F.R. 1024.14(g)(vi). The CFPB considers it a kickback for the title company to put another company’s logo on the toolkit, because it defrays an expense that would otherwise be incurred by the other company.

This is a fine line indeed. To see the CFPB’s written guidance on when the use of a company logo crosses that line and becomes an illegal kickback, see slides 40 and 41 of the CFPB representative’s “Know Before You Owe: The real estate professional’s guide” presentation.

Consumer Financial Protection Bureau, Fair Lending, Federal Regulatory

Long live fair lending…it never really died

Over the past year, many have speculated that the concept of fair lending would be weakened by the U.S. Supreme Court as they considered the "disparate-impact theory of discrimination" in the case of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. Today, the Court settled the issue. Lenders of all sizes must continue to consider and closely analyze the impact of their pricing and lending policies, as the Court has upheld the use of disparate-impact claims under the Fair Housing Act of 1968.

The focus of today's ruling was whether disparate-impact claims are allowable where a plaintiff alleges discrimination based a defendant’s “facially neutral” practice — and not on specific discriminatory intent or actions. In other words, the Court considered whether a company could be held liable for a neutral policy that has a negative effect on members of a group classified by race, ethnicity or gender. The answer is a resounding "yes".

Fair lending guidelines were, in fact, never "dead," even had the ruling gone the other way. However, expectations are now heightened on lenders of all sizes. Careful review of lending trends and analysis of a company's data must be made a priority. It IS all in the data. Regulators and litigators will be looking at this data to establish evidence of unfair impact on minority groups, and will look to use this publicly available data to establish new claims and significant liability.

There are very efficient and cost-effective tactics on which to build a compliance plan around this issue. The winning solution is to be proactive.

Fair Lending, Federal News

TRID: Do you want to know a secret?

You are not alone; everyone is scrambling. The TILA/RESPA Integrated Disclosure (TRID) rule is overwhelming. No one is prepared. Take nearly 2,000 pages of rules — and a small window of time — and you will find few companies that consider themselves to be functional or ready for what is to come on August 1.

TRID, at its very essence, is supposed to be about providing clarity for consumers related to the costs of credit and the terms of a loan. If lenders are to adequately prepare, they must break preparation down into six smaller steps:

  1. Technology implementation
  2. Origination (sales) policies, education and preparation
  3. Operations policies, education and preparation
  4. Pre-closing quality assurance
  5. Implementation of new work flows for sales, processing, underwriting and closing
  6. Communication and expectation setting with third parties

To read more, click here.

Consumer Financial Protection Bureau, Consumer Lending and Services, Depository Institutions, Fair Lending, Federal Regulatory

Will your loan originator compensation plan pass muster?

Dust off your payroll records, loan originator compensation agreements and your accounting policies and procedures. The Consumer Financial Protection Bureau (CFPB) will be looking at these documents to determine if companies and individuals with managerial responsibility are violating the Loan Originator Compensation Rule that went into effect in April 2012.

The rule prohibits any person from paying a loan originator compensation, directly or indirectly, that is based on any of a loan transaction’s terms or conditions. Basically, it bans compensation that incentivizes a loan originator to steer customers into mortgage loans with less favorable terms, such as higher interest rates. This seems like old news, but after last week, a refresher is in order.

To read more, click here.

Consumer Financial Protection Bureau, Fair Lending, Federal Regulatory

CFPB takes action on fair lending, result is a $9 million consent order

Be careful of the company you keep. The U.S. Department of Justice (DOJ) and Consumer Financial Protection Bureau (CFPB) are holding Provident Funding Association, L.P., liable to the tune of $9 million for alleged violations of the Fair Housing Act and Equal Credit Opportunity Act committed not by Provident, but by independent mortgage brokers from whom Provident obtained its mortgage loan transactions from 2006 to 2011.

Provident is a non-bank wholesale lender licensed in 25 states and the second-largest private mortgage lender in the country. Provident denied the allegations and maintained it did not receive any of the fees charged by the mortgage brokers. Nevertheless, the DOJ and CFPB countered that “It was Provident’s business practice to give the mortgage brokers who generated loan applications for it the subjective and unguided discretion to determine the total broker fees they would charge,” which “resulted in African-American and Hispanic borrowers paying more than white borrowers for home mortgage loans….”

The statistical analysis conducted by the government showed that African-American borrowers paid at least $858 more in total broker fees and Hispanic borrowers paid at least $615 more in total broker fees than white borrowers on the average home loan amount Provident originated. Even though the fees were paid to mortgage brokers and not to Provident, the DOJ and CFPB alleged that Provident engaged in a pattern or practice of lending discrimination and denial of borrowers’ rights “by allowing its wholesale mortgage brokers to charge African-American and Hispanic borrowers higher broker fees than non-Hispanic white borrowers.”

Provident agreed to settle the case by entering into a consent order consisting of four parts — an action plan, a monitoring program, an equal credit opportunity training program and a monetary relief. Since Provident had already changed its mortgage broker compensation plan years ago to comply with the CFPB’s loan originator compensation and QM rules, the action plan merely requires Provident to continue its current mortgage broker compensation policy.

But as recompense for its 2006 to 2011 failure to control the fees independent mortgage brokers negotiated with borrowers, Provident will have to establish a $9 million settlement fund and pay back aggrieved borrowers. Of course, the DOJ and CFPB will determine who is an aggrieved borrower as well as how much Provident will have to pay each one.

Prior enforcement actions and CFPB bulletins have made it clear that the CFPB will not hesitate to hold a financial institution responsible for violations of federal consumer financial laws committed by its service providers. Wholesale lenders have a responsibility to oversee the business practices of mortgage brokers in the same manner that they oversee the business practices of their other third-party service providers. Further, this case illustrates the risks that retail originators may face by allowing unfettered pricing discretion to their remote branches.

For more information on this case, read the CFPB press release.

Consumer Financial Protection Bureau, Consumer Lending and Services, Fair Lending, Federal Regulatory, Non-Depository Institutions