On September 12, 2016, the Nationwide Multistate Licensing System (“NMLS” or “the System”) will begin receiving and tracking Electronic Surety Bonds (“ESB”). In an unprecedented departure from the traditional uploading of a copy of a surety bond document to the applicant’s or licensee’s record followed by the delivery of the paper bond to the state, regulators in Idaho, Indiana, Iowa, Massachusetts, Texas, Vermont, Washington, and Wisconsin have publicly announced the adoption of ESB in 2016 for several license types.  This is the first group of states to “bond on line,” but all states are expected to have a common bond process through the NMLS.

Many states require licensed financial services businesses to get a surety bond so that state regulators or consumers may file claims against the bond to cover fines or penalties assessed, or provide restitution to consumers if the licensee fails to comply with licensing or regulatory requirements.  The NMLS reports that 177 license authorities currently managed on the system require a licensed company to maintain a surety bond as a condition of licensure.  States have even imposed bond requirements on individual mortgage loan originators (“MLOs”), in accordance with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”), but allow for MLOs to be covered under a company bond.

NMLS was created to serve as a comprehensive system of record for licensing information. However, as it relates to surety bonds, the System’s current functionality is antiquated, limited, and does not allow for the tracking of bond requirements, or the maintenance of bond information validated by authorized surety companies and/or bond producers. State regulators have also cited the tracking of surety bond compliance as a reason for processing delays in license applications, amendment filings, and renewal approvals. For those reasons, the State Regulatory Registry LLC, which administers the NMLS, believed a fully electronic surety bond process would provide efficiencies for both industry and regulators.

The first phase of this ESB process entailed the creation of an account by each participating surety company and association with those accounts by surety bond producers. The second phase, which will begin September 2016, entails implementation of bond issuance, tracking, and maintenance.

If you have not already done so, and especially if you are licensed or intend to become licensed in one of the eight states listed above that will be implementing this new functionality in September, you should ensure that your surety bond company has created an account in the system and be aware of the new application and conversion deadlines that are listed on the NMLS ESB Adoption Map and Table.

NMLS is offering a complimentary training webinar on the upcoming ESB enhancements. The training is expected to provide an overview of the ESB enhancements, including the bond creation and management process, a demonstration of the new functionality, the resources available on the NMLS Resource Center, and a live question-and-answer opportunity.  Mayer Brown’s Regulatory Compliance Analysts have completed the training, and are available to assist our clients in this transition.

Friday, August 26, 2016

1:00 – 2:30 p.m. ET.

Click here to log in to the NMLS Learning Management System (“LMS”) and enroll in the webinar. NMLS intends to make a recording available within five business days of the webinar.

If you do not have an LMS account, click here for instructions on how to register.

The Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) has taken another step towards improving its consumer complaint process and the Consumer Complaint Database.  On August 1, 2016, the Bureau published a Notice and Request for Comment in the Federal Register on its new information collection, “Consumer Response Company Response Survey.”  The purpose of the information collection is to incorporate a short survey into the CFPB’s complaint closing process.  The survey builds on a Notice and Request for Comment issued by the Bureau in March 2015 seeking input on how to highlight positive consumer experiences with providers of financial products and services. Continue Reading CFPB Seeks Input on Changes to Consumer Complaint Process

Last week the American Association of Residential Mortgage Regulators (AARMR) hosted its 27th annual regulatory conference in Tampa, Florida. Over 300 attendees gathered to exchange information relating to the licensing, supervision, and regulation of the residential mortgage industry.  Here are some of the highlights from the conference:

NMLS 2.0 — What’s on Your Wish List?

By far the hottest topic was “NMLS 2.0,” an effort to modernize the existing Nationwide Multistate Licensing System (NMLS) introduced in 2008.  The NMLS, which was built for mortgage lending licenses, also applies to other types of consumer lenders.  Modernization entails rebuilding the system, not just selected upgrades, to meet anticipated future needs for usability, enhanced functionality, and expansion for use by collection agencies, money transmitters, and installment lenders licensed through NMLS. Initial modernization discussions addressed account management, entity affiliation and application submission, and maintenance. While the overhaul is expected to be complete in 2018, that may be overly optimistic.

Meanwhile, the State Regulatory Registry LLC (SRR), which formally administers the NMLS, has expressed its commitment to consider input from both regulator and industry users of the system as the modernization development continues. If you have been thinking that a single sign-on to assist in the management of multiple accounts, a customizable user role template to assist in the management of your organization users, a more streamlined sponsorship process, or an employment history that is linked to sponsorship for an automated update of your record is on your list of must haves, let us know – we are active participants in the NMLS industry development working group (IDWG), and we frequently submit comments to SRR regarding proposed functional changes to the NMLS.

Examination Findings

Both the state and the federal regulators at the AARMR conference discussed frequent findings in their examinations. Across the country, regulators saw (i) failures in timely filing of advance change notices, (ii) unapproved records storage locations, (iii) property owners who were locked out of their homes even when actively working with the servicer, and (iv) deficiencies in compliance systems. In addition, regulators are starting to look not only at the licensee’s compliance with the individual rules and regulations, but at its ability to test and audit technology-based processes, quickly identify issues, and implement a resolution process.

Vendor Management

Regulators also expressed concerns about licensees’ assessment of risks presented by reliance on vendors.  Many state regulators are requiring more oversight (including auditing) of certain vendors by the licensee.  Regulators warned that a licensee could be penalized for the inappropriate actions of certain vendors, even if the vendor is regulated and examined by another agency.

States Regulators Consider CFPB Rules

Consumer Financial Protection Bureau (CFPB) Deputy Assistant Director Brown discussed the final mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulations X) and Truth in Lending Act (Regulation Z).  That rule addresses loss mitigation, early intervention, and periodic statements.  It also addresses successors in interest, debtors in bankruptcy, and borrowers who send a cease communication request under the Fair Debt Collection Practices Act (FDCPA).

Simultaneously, the CFPB issued an interpretive rule to clarify the interaction of the FDCPA and certain mortgage servicing rules in Regulations X and Z.  The interpretive rule provides safe harbors from liability for servicers : (1) communicating about the loan with confirmed successors in interest; (2) providing the written early intervention notice required by Regulation X to a borrower who has invoked the cease communication right; and (3) responding to a borrow-initiated communication concerning loss mitigation after the borrower has invoked a cease communication right.

Given what we hear from state regulators, do not be surprised if many of the CFPB’s rules find their way into state law.

(Mayer Brown’s Consumer Financial Services Review addressed the CFPB’s final mortgage servicing rules and its FDCPA interpretation here.)

Account Executive Licensing?

The NMLS Ombudsman session included a lively discussion of whether individual account executives of wholesale mortgage lenders must be licensed as mortgage loan originators. After a detailed description of the activities performed by these account executives, a few state regulators recommended licensing, but affirmed that it was not required. Several state regulators declined to respond categorically, but warned that an individual could “step over the line” and be considered a mortgage loan originator if he or she discusses loan terms with the consumer.

Generally, states have adopted the SAFE Act definition of a “mortgage loan originator,” and unless exempt, an individual is required to be licensed if he or she takes a residential mortgage loan application and offers and negotiates the terms of a residential mortgage loan for compensation or gain. As account executives or similar persons perform their duties, they should be aware of whether they are performing those mortgage loan originator activities, regardless of their current professional title.

Keisha Whitehall Wolf served as the Acting Deputy Commissioner for the Maryland Office of the Commissioner of Financial Regulation before joining Mayer Brown.

Nearly three years after releasing its Advance Notice of Proposed Rulemaking on debt collection practices, the Consumer Financial Protection Bureau (CFPB) has finally offered some insight on its plans for issuing rules under the Fair Debt Collection Practices Act. On July 28, 2016, the CFPB released an outline of proposals that it is considering in preparation for the next step in the rulemaking process—convening a Small Business Review Panel. Read more about the proposals under consideration, particularly in light of past CFPB enforcement actions and guidance, in Mayer Brown’s Legal Update, available here.

 

Today the CFPB finalized the final mortgage servicing rules update that it proposed at the end of 2014.  The rule adds new protections for mortgage borrowers in financial distress, including provisions that require servicers to:

  • Provide some borrowers with foreclosure protections more than once over the life of the loan;
  • Provide protections to an expanded universe of successors in interest upon the death of a borrower;
  • Provide more information to borrowers in bankruptcy;
  • Notify borrowers when their loss mitigation applications are complete;
  • Comply with specific timing requirements for loss mitigation activities when servicing rights are transferred;
  • Avoid wrongful foreclosures by refraining from pursuing those actions until loss mitigation applications are properly dispositioned;
  • Comply with clear timing requirements for borrower delinquencies.

The final rule also addresses force-placed insurance and periodic disclosure requirements.

Concurrently with that final servicing rule, the CFPB issued an interpretive rule under the federal Fair Debt Collections Practices Act (FDCPA), to address its interplay with the new servicing rules and their requirements related to certain borrower communications.

Most of the new requirements will become effective one year following their publication in the Federal Register, so their effective date will likely be in the fall of 2017.  The requirements addressing successors in interest and periodic statements for borrowers in bankruptcy will become effective 18 months after publication.

Mayer Brown will issue a detailed analysis of the new provisions in an upcoming Legal Update.

With only a few days to spare in order to meet its July 2016 target release date, the Consumer Financial Protection Bureau (“CFPB”) finally issued a Notice of Proposed Rulemaking (NPRM) today, proposing a number of amendments to its TILA-RESPA Integrated Disclosure rule (“TRID” or the “Know Before You Owe” rule).

On April 28, 2016, the CFPB issued a letter stating that it would engage in formal rulemaking in order to provide “greater certainty and clarity” to the mortgage industry. (Mayer Brown’s post regarding the April 28 letter can be found here.)  Since then, the industry has been anxiously awaiting the proposal to see which of the many issues the CFPB would address.  While it may not have touched upon every issue on which the mortgage lending industry has pleaded for guidance, the NPRM is a step in the right direction, indicating that the CFPB understands some of the challenges market participants have faced.

Since the regulations were finalized in November 2013, the CFPB has periodically issued informal guidance through webinars, compliance guides, and sample disclosures.  With its current proposal, the CFPB is seeking to memorialize its past guidance, as well as make additional clarifications and technical updates.  In the NPRM, the CFPB highlights the following four amendments:

  • Tolerances for the Total of Payments Disclosure — The Truth in Lending Act provides certain tolerances when calculating the finance charge and “disclosures affected by the disclosed finance charge.”  Prior to TRID, the finance charge was a component of the Total of Payments disclosure.  However, TRID changed  the Total of Payments calculation so that the finance charge was not specifically used.  The current proposal would include a tolerance provision for the Total of Payments that would parallel the tolerance for the finance charge.
  • Housing Assistance Lending — TRID currently provides a partial exemption for certain housing assistance loans that are originated primarily by housing finance agencies and non-profits.  According to the CFPB, the exemption was not operating as intended, so the CFPB is proposing to clarify that recording fees and transfer taxes may be charged in connection with a housing assistance loan without losing eligibility for the exemption.  The proposal also would exclude recording fees and transfer taxes from the exemption’s limits on costs.
  • TRID’s Application to Cooperatives — Currently, TRID’s applicability to loans secured by interests in cooperative units depends on whether a cooperative is considered real property under state law.  Since some states treat cooperatives as real property, and others deem it personal property, there is not uniform coverage of cooperatives under the regulation.  In order to provide more consistency, the CFPB proposes to require the provision of the TRID disclosures in all transactions involving cooperative units, regardless of whether state law classifies the interests as real or personal property.
  • Privacy and Information Sharing — The CFPB has received many requests for guidance regarding the sharing of disclosures with sellers, real estate agents, and others involved in the mortgage origination process.  In its proposal, the CFPB seeks to add a comment that addresses a creditor’s ability to modify the Closing Disclosure in order to accommodate the provision of separate disclosures to the consumer and seller.  The proposal would also add examples where the creditor may choose to provide separate Closing Disclosure forms to the consumer and the seller.

In addition, the CFPB includes a number of “minor changes and technical corrections” in the NPRM.

Mayer Brown’s Legal Update detailing the CFPB’s proposal is coming soon.

On Tuesday, August 2, 2016, at 2:00pm EDT, Mayer Brown and Paybefore.com will present a webinar on the CFPB’s actions against payment processors for allegedly facilitating illegal transactions by their clients. The presenters will be Mayer Brown attorneys David Beam, Ori Lev, and Jeremy McLaughlin, and the moderator will be Paybefore’s Evan Schuman.  The webinar will discuss the CFPB’s enforcement actions against payment processors, explain the factors that led the CFPB to conclude that the payments companies were culpable, and discuss practical steps companies can take to avoid the same fate.

Register for the event here.

The Consumer Financial Protection Bureau (CFPB) marks its fifth birthday having made a substantial mark on the consumer financial services marketplace. To mark this event, we have compiled a retrospective of the CFPB’s first five years. The retrospective provides an overview of the CFPB’s actions in the realms of rulemaking, supervision, and enforcement. While it would be difficult to chronicle all of the CFPB’s activities over that period, the articles in the retrospective provide a snapshot of the rules the CFPB has written or proposed, the supervision program it has implemented, and the enforcement actions it has taken across the landscape of consumer financial services. Some of the articles appeared previously on this blog, others appeared as Mayer Brown Legal Updates, and many are new analyses or summaries of the CFPB’s actions.  Read the retrospective, available here.

 

The Consumer Financial Protection Bureau’s (CFPB) use of its “substantial assistance” authority is becoming a common way for the agency to go after parties that might otherwise escape its reach. After not using this tool at all in its first three-and-half years of existence, the CFPB has now started to bring such claims with increasing frequency. The CFPB has brought ten substantial assistance cases, charging both counterparties of entities alleged to have engaged in unfair, deceptive or abusive acts or practices (UDAAPs) and individual owners and managers of such entities. Based on its enforcement actions to date, the CFPB apparently intends to use substantial assistance claims both as a fallback if other claims fail and to extend its jurisdictional reach where other theories are unavailable. But key questions remain, including what the CFPB must establish under the provision’s scienter requirement, what constitutes substantial assistance, what violations may form the predicate of a substantial assistance claim, and how substantial assistance liability interacts with other limitations on CFPB authorities. Read more about the CFPB’s substantial assistance cases in Mayer Brown’s Legal Update, available here.

 

On June 27, 2016, a New York federal jury found that a bank and its affiliated mortgage company violated the Fair Housing Act, the Equal Credit Opportunity Act, and the New York City Human Rights Law by intentionally marketing to African-American and Hispanic homeowners predatory loans with default interest rates of 18 percent.

In 2011, eight homeowners filed suit in the Eastern District of New York, claiming that between 2004 and 2009 the bank “aggressively originated” no income refinancing loans with unfavorable terms to them because they were minority borrowers.

According to the 2014 amended complaint, the bank marketed NINA (No Income No Assets) loans to homeowners with low credit scores but substantial equity in their houses. When issuing these loans, the bank did not consider the homeowners’ ability to repay but valued the loan based on the home’s equity. Homeowners could be charged an interest rate of 18 percent if they were late by 30 days in making a single payment.

The homeowners alleged they were purposely targeted for these loans because of their poor credit and resulting likelihood of default, and that this practice had a disparate impact on African-American and Hispanic borrowers. Specifically, the complaint stated that “[s]ince black and Latino individuals are disproportionately represented among persons with low credit scores, [the bank’s] marketing of these abusive loans to this population ensured that the loans would have their greatest impact on minority homeowners.” The jury found that the bank’s practices constituted violations of the federal fair lending laws and the New York state law.

Six of the plaintiffs were awarded a combined $950,000 in damages, while the jury found that the remaining two homeowners waived their claims upon modifying their loans and were not eligible for damages. The bank has asserted its plan to appeal the decision.

Legal Services NYC, who represented several of the homeowners, stated that the case marks the first time a jury has held a bank liable for reverse redlining.

Lenders that offer loans to consumers with impaired credit should consider evaluating their practices for potential reverse redlining risk.

*Mrs. Moyer is not admitted in the District of Columbia. She is practicing under the supervision of firm principals