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

Public and private sectors agree: Investment needed in banks’ cybersecurity

The Federal Reserve (the Fed) recently announced that it will participate in a study to determine how effective the central bank is at overseeing cybersecurity practices in the financial industry. The Fed’s Office of Inspector General (OIG) will be conducting the internal audit and plans to release the findings in the fourth quarter of this year.

The announcement comes on the heels of congressional inquiry into the Fed’s security practices in light of the attempted theft of $951 million from a Federal Reserve Bank of New York account held by Bangladesh Bank, the South Asian country’s central bank. While the N.Y. Fed successfully blocked 30 transactions that would have totaled an $850 million withdrawal, five transactions totaling $101 million were successful.

The OIG study will be the first public report to detail how strictly the central bank holds the financial industry to the regulations that are in place to protect from hackers and other criminals. “The growing sophistication and volume of cybersecurity threats presents a serious risk to all financial institutions,” according to the OIG. Mary Jo White, Chair of the Securities and Exchange Commission, described attacks like the one against the N.Y. Fed as the biggest risk currently facing the financial industry.

This sentiment seems to be echoed by the private sector as well. An international survey conducted by Kaspersky Lab and B2B International found that among businesses around the globe, protection from cyberattacks ranked amongst their highest priorities. Of the 5,500 businesses surveyed, 41 percent have invested in an in-house solution for protecting their financial transactions and 45 percent use a bank-provided solution.

While the investment rate is prolific, firms’ confidence in their ability to thwart an attacker is not so widespread. The most confident sector — the telecommunications industry — reported confidence with their fraud security at a 70 percent rate.  Only 67 percent of financial institutions reported their confidence in the same. Forty-seven percent of the firms surveyed indicated that their protections needed improvement.

Looking at the financial industry specifically, 48 percent of the respondents “admitted what they do to address the problem can be described as ‘mitigation’ rather than ‘prevention.’”  One of the largest concerns for banks – (38 percent of the organizations surveyed agreed it’s a problem for them) is distinguishing an attack from normal customer activity.  

Depository Institutions, Federal Regulatory, Non-Depository Institutions

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

What are you doing to build relationships with state regulators?

For today’s mortgage providers, seeking meaningful interaction with state regulators, beyond the licensing process, is essential. In her recently published Mortgage Compliance magazine article, “In Your Face – Seeking Meaningful Interaction With Your Regulators,” Bricker & Eckler attorney Jackie Mallett urges business leaders to be aware and take advantage of opportunities to network with regulators. Specifically, Jackie gives tips on communicating face-to-face with regulators at two national events: the Nationwide Mortgage Licensing System (NMLS) and the American Association of Residential Mortgage Regulators (AARMR) annual conferences.

Federal News, Non-Depository Institutions, State 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

Mortgage Choice Act and other regulatory relief bills pass committee

 

The House Financial Services Committee recently passed several bills related to Consumer Financial Protection Bureau (CFPB) rulemakings, including H.R. 685, the Mortgage Choice Act, which “aims to assist banks that originate mortgages through the wholesale channel by modifying the points-and-fees formula in the CFPB’s ability-to-pay rule,” Inside Mortgage Finance reports. H.R. 685 would remove “insurance and taxes held in escrow and fees paid to affiliated companies” from that calculation. 
 
Other CFPB-related bills that passed included H.R. 1195, which “would create a small business advisory board to advise the CFPB, and would codify . . . the Credit Union Advisory Council and the Community Bank Advisory Council.” Three bills passed with strong support from both parties: H.R. 1259, the Helping Expand Lending Practices in Rural Communities Act; H.R. 1265, the Bureau Advisory Commission Transparency Act; and H.R. 1529, the Community Institution Mortgage Relief Act.

 

Consumer Financial Protection Bureau, Legal Developments, Non-Depository Institutions