On October 17, 2017, in response to an investigation concluding that title insurance companies and agents were spending millions of dollars a year in “marketing costs” provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, free classes, and vacations that ultimately were passed on to consumers through heightened title insurance rates, the New York Department of Financial Services (“DFS”) issued Insurance Regulation 208, in which it identified a non-exhaustive list of prohibited inducements and permissible marketing expenses. The new rule went into effect on February 1 of 2018. Five months later, on July 5th, 2018, the New York State Supreme Court (the state’s trial-level court) annulled the part of the DFS regulation addressing marketing practices, holding that any such rule must be issued by the state legislature, not a regulating agency.
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Rulemaking
HUD Seeks Public Comment on Disparate Impact Rule
On June 20, the U.S. Department of Housing and Urban Development (“HUD”) published an advance notice of proposed rulemaking (“ANPR”) that seeks public comment on whether and how to amend its 2013 rule under the Fair Housing Act (“FHA”). The ANPR follows HUD’s May 10 announcement of its intention to formally seek public comment on the rule in light of the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., in which the Court recognized disparate impact as a cognizable theory under the FHA, but imposed meaningful limitations on the application of the theory.
The ANPR, together with the statement of Bureau of Consumer Financial Protection Acting Director Mick Mulvaney this spring that the Bureau would be “reexamining the requirements of ECOA” in light of “a recent Supreme Court decision” (i.e., Inclusive Communities), signals that the Trump administration is likely seeking to retreat from the Obama administration’s enthusiastic use of disparate impact liability in lending discrimination cases.
The Disparate Impact Rule and Inclusive Communities
HUD finalized its disparate impact rule in February 2013. The rule codified HUD’s Obama-era view that disparate impact is cognizable under the FHA. In contrast to disparate treatment claims, in which a plaintiff must establish a discriminatory motive, a disparate impact claim challenges practices that have a disproportionately adverse effect on a protected class that is not justified by a legitimate business rationale. The rule states that a practice has a “discriminatory effect” where “it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.” HUD explained that it had “consistently concluded” that facially neutral policies that resulted in a discriminatory effect on the basis of a protected characteristic violated the FHA, and that the rule merely “formalize[d] its longstanding view.” The rule also formalized a three-part burden-shifting test for determining whether a practice had an unjustified discriminatory effect.
At the time HUD issued the rule, the nonprofit Inclusive Communities Project, Inc. was embroiled in a lawsuit against the Texas Department of Housing and Community Affairs, in which it brought a disparate impact claim under the FHA. After HUD issued the disparate impact rule, the Texas Department filed a petition for a writ of certiorari to the Supreme Court on whether the FHA recognized disparate impact claims. In its 2015 decision, the Supreme Court held that disparate impact claims are cognizable under the FHA, but the Court articulated a rigorous standard for a successful claim. The Court did not explicitly address the merits of HUD’s rule, nor did the rule form the basis of its holding. …
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Congress Invalidates CFPB’s Indirect Auto Lending Guidance
On May 8, 2018, the House of Representatives used the Congressional Review Act (“CRA”) to vote to repeal the Consumer Financial Protection Bureau’s (CFPB’s) March 2013 bulletin addressing indirect auto lending and compliance with the Equal Credit Opportunity Act (“ECOA”). That vote follows the Senate’s April 18 CRA vote to repeal the bulletin. President Trump…
A Ray of Light Through the “Black Hole”: TRID Amendment Permits Tolerance Reset with Revised Closing Disclosure
A creditor’s inability to reset fee tolerances with a revised Closing Disclosure more than four business days before closing has been one of the more adverse unintended consequences of the TILA-RESPA Integrated Disclosure (“TRID”) regulations that became effective in October 2015. However, a fix is on the horizon. On Thursday, April 26, 2018, the Consumer Financial Protection Bureau (“CFPB”) announced final amendments to TRID to eliminate the timing restrictions that have plagued creditors and, in certain cases, increased creditors’ costs to originate residential mortgage loans. With an effective date 30 days after the final amendments are published in the Federal Register, this change is a welcome relief to mortgage lenders. …
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CFPB Finalizes Single-Statement Transition Period for Mortgage Statements to Borrowers in Bankruptcy
On March 8, the Consumer Financial Protection Bureau (“CFPB”) finalized the amendment to its 2016 Mortgage Servicing Final Rule (“2016 Final Rule”) to clarify the transition timing for mortgage servicers to provide periodic statements and coupon books when a consumer enters or exits bankruptcy.
Under the 2016 Final Rule, mortgage servicers will be required (as…
Pennsylvania Drafts Mortgage Servicing Regulations to Track RESPA Requirements
On February 6, 2018, the Pennsylvania Department of Banking and Securities issued draft regulations in response to the state’s recent law requiring licensing of mortgage loan servicers. The new regulations provide a great deal of information about what servicers will be required to do, but no additional guidance on exactly which entities must obtain the new license.
As we wrote previously, Pennsylvania Senate Bill 751 (also referred to as “Act 81” of 2017) amended the state’s Mortgage Licensing Act to require a person servicing mortgage loans to obtain a license. “Servicing a mortgage loan” for that purpose is defined as “collecting or remitting payment or the right to collect or remit payments of principal, interest, tax, insurance or other payment under a mortgage loan,” without limiting that phrase (and thus without limiting the licensing obligation) to servicing activity conducted only for others. As we indicated, that could be interpreted to require licensing even of persons servicing their own portfolio, unless the servicer also originated the loans (or unless an exemption otherwise applies, such as for banking institutions, their subsidiaries, or their affiliates, which are exempt from licensing upon registering). The legislation also does not indicate whether the licensing obligation applies to an entity that merely holds mortgage servicing rights without directly servicing the loans.
Unfortunately, the Department’s recent draft regulations do not provide guidance on whether such entities must obtain the license. …
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Military Lending Act and Servicemembers Civil Relief Act: Important Updates
Despite changes in leadership at numerous federal agencies, Washington D.C. continues to focus on lending to servicemembers. In December, Congress extended the time period for protections against foreclosure under the Servicemembers Civil Relief Act. Otherwise, those protections would have expired at the end of 2017.
In addition, the Department of Defense recently amended its Military…
CFPB Director Richard Cordray to Step Down
In an email to staff, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday, November 15, that he will be stepping down this month. His departure was widely anticipated. Because the CFPB is headed by a single director – as opposed to a 5-member commission – the agency’s director wields enormous power. Below we address some of the most frequently asked questions regarding Director Cordray’s resignation.
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New York Takes Aim at Title Insurance Marketing Practices
New title insurance regulations in New York restrict the marketing practices of title insurance agencies and affect the operation of affiliated businesses.
The New York Department of Financial Services (“DFS”) issued two final regulations on October 17, 2017 that follow a DFS investigation into the marketing practices and fees charged by title insurance industry members. The DFS stated that the investigation revealed that members of the title industry spend millions each year in “marketing costs” provided to attorneys, real estate professionals, and mortgage lenders in the form of meals, gifts, entertainment, and vacations and then include those expenses in the calculation of future title insurance rates. The DFS had already implemented emergency regulations to address those practices. The recent final regulations represent permanent guidelines on certain behavior the DFS deems prohibited and permissible under the state’s title insurance statutes.…
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Congress Votes to Invalidate CFPB’s Anti-Arbitration Rule
The anti-arbitration rule issued by the Consumer Financial Protection Bureau in July is now just one short step away from elimination.
The Senate tonight voted 51-50 (with Vice President Pence casting the deciding vote) to invalidate the CFPB’s rule under the Congressional Review Act (CRA). That vote follows the House of Representatives’ disapproval of the…