February 25th 2015

Commentary By Ramesh Ponnuru

Car dealers sometimes make discounts, at their discretion, on loans they help to arrange with financial companies. That's a pretty fundamental aspect of how they do business. Yet the federal government is trying to put a stop to it.

The Consumer Financial Protection Bureau, an independent agency established by the Dodd-Frank financial-regulation law in 2010, says that letting the dealers exercise discretion opens the door to discrimination based on race and sex (whether or not that discrimination is intentional). So it's leaning on lenders to eliminate or at least limit that discretion and come up with "a different mechanism" for compensating dealers.

The CFPB's position runs into three difficulties that invalidate its approach to this issue -- and suggest how prone to abuse this new agency may become.

First, evidence of widespread harm in this intensely competitive market is thin. Auto lenders aren't allowed to gather data on customers' race. So the bureau has resorted to the dubious proxies of surnames and geography to assign races to customers, and then to assess discrimination. It has dragged its feet about revealing its methods, which are open to serious question. A study by Charles River Associates, a consulting company, found that differences in the way customers are treated "can be largely explained by objective factors other than race and ethnicity. In addition, the use of race and ethnicity proxies creates significant measurement errors, overestimates minority population counts, and results in overstated disparities."

The agency's legal authority is also shaky. The Dodd-Frank law included an amendment specifically exempting car dealers from the CFPB's jurisdiction. The agency thinks it can get around that limitation by regulating dealers at one remove -- that is, by using regulation of financial companies to change their behavior. Whether that narrow reading of the law is a plausible one will be up to the courts if the CFPB keeps up its effort.

And finally, there's an alternative way to reduce the risk of discrimination. The National Automobile Dealers Association, a trade group that opposes the CFPB's action, is promoting a programmodeled on a consent agreement the Justice Department entered into with two car dealers to resolve accusations of unintentional discrimination. Dealers would develop policies for offering discounts and keep records of why they were offered. That seems like an approach worth trying before ham-handedly forcing changes to car dealers' business model.

Representatives Marlin Stutzman and Ed Perlmutter introduced a bill in the last Congress to stop the CFPB from regulating the car dealers. It drew 149 co-sponsors, including many liberal Democrats who cannot be said to be soft on discrimination. The bill is expected to be re-introduced this year.

When Dodd-Frank was being debated in Congress, critics warned that the CFPB would have little accountability and would therefore be inclined to overreach. On this issue, the agency seems determined to prove that fear right.

February 17th 2015

The commenting period for the proposed amendments to the Consumer Financial Protection Bureau (CFPB)'s TILA/RESPA rules is open until March 16, according to the Federal Register website.

The proposed amendments were first published in the Federal Register on December 15. CFBP's mortgage rules were first proposed in 2013 and went into effect in January 2014; the proposed amendments to the rules are under the Real Estate Settlement Procedures Act (Regulation X, or REPSA) and the Truth in Lending Act (Regulation Z, or TILA).

"These proposed amendments focus primarily on clarifying, revising, or amending provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and periodic statement requirements under Regulation Z's servicing provisions," the rule states on the Federal Register site. "The proposed amendments also address proper compliance regarding certain servicing requirements when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act."

Noteworthy proposed amendments include:

  • For the purpose of RESPA, expanding the definition of "borrower" to include successors in interest, which are defined as members "of any of the categories of successors in interest who acquired an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Act."
  • Loosening the requirement that servicers provide both the name of the trust and appropriate contact information for the trustee, which can be burdensome, particularly when the trustee is Fannie Mae or Freddie Mac. The amendment would require the servicers to request only the loan's owner or assignee by providing the name and contact information for Fannie Mae and Freddie Mac if one of the GSEs is the trustee, investor, or guarantor of the loan, and the servicer would not be required to provide the name of the trust. However, the servicer would still be required to give the name or number of the trust pool should the borrower specifically request that information, regardless of whether one of the GSEs is involved in the loan.
  • Requiring lenders to offer loss mitigation options to borrowers more than once over the lifetime of a loan, should a borrower become current on his or her loan after a delinquency. Currently, lenders are required to offer loss mitigation to a borrower only once over the life of a loan regardless of the borrower's payment history.
December 15th 2014

The Bureau of Consumer Financial Protection (Bureau) is proposing amendments to certain mortgage servicing rules issued in 2013. These proposed amendments focus primarily on clarifying, revising, or amending provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and periodic statement requirements under Regulation Z's servicing provisions. The proposed amendments also address proper compliance regarding certain servicing requirements when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. The proposed rule makes technical corrections to several provisions of Regulations X and Z. The Bureau requests public comment on these changes.

May 13th 2014

The Consumer Financial Protection Bureau is continuing its efforts to make it easier to comply with the requirements of the Truth in Lending Act.

In March, the CFPB issued its TILA-RESPA compliance guide which was designed to help smaller lenders and other mortgage companies understand and comply with the new mortgage disclosure rules designed to make it easier for consumers to understand loan documentation.

Now, the CFPB is launching eRegulations, an “intuitive, easy-to-navigate electronic format of Truth in Lending regulations.” The CFPB said that it expects eRegulations to make it easier to implement and use the recently adopted mortgage rules.

According to the CFPB, eRegulations makes the TILA regulations “easy to read and navigate.” The website features clear typography and a “persistent table of contents” to ensure fast access to any section of the regulation.

Specifically, eRegulations highlights TILA’s “Regulation Z” which protects people when they use consumer credit. Regulation Z defines consumer credit as: mortgage loans, home equity lines of credit, reverse mortgages, open-end credit, certain student loans and installment loans.

The eRegulations website also features a regulation timeline which shows recent revisions of the regulation organized by the effective date of the revision. Users can also compare any two versions of the regulation, word for word, by selecting a date in the menu.

The website also features inline official interpretations and highlighted defined terms.

Click here to visit eRegulations from the CFPB

February 20th 2014

Describing his message as a “tough one,” CFPB Deputy Director Steven Antonakes told attendees yesterday at the Mortgage Bankers Association’s National Mortgage Servicing Conference that “continued sloppiness” by servicers “is difficult to comprehend and not acceptable.”  While acknowledging the CFPB’s past statements that it would not immediately expect perfect compliance with the new mortgage servicing rules and instead would be looking at whether companies were making a good faith effort to comply, Mr. Antonakes’ remarks indicate that the CFPB will be taking a very narrow view of what constitutes a “good faith effort.”  

Telling mortgage servicers that a “good faith effort does not mean servicers have the freedom to harm consumers,” Mr. Antonakes stated that he wanted to “very clearly lay out [the CFPB's] expectations.”  He indicated that “in these very early days, technical issues should simply be identified and corrected” and that the CFPB expects servicers to “conduct outreach to ensure that all customers in default know their options” and “assess loss mitigation applications with care.”  He stated that the CFPB will be paying “exceptionally close attention” to servicing transfers, looking to see if all information and documents are transferred as required.  He further stated that failures to honor existing permanent or trial modifications “will not be tolerated” and that force-placed insurance should only be used as “a last resort” and not “as a profit center.”   

As we continue to work with clients on implementing the new mortgage servicing rules and conducting assessments/gap analyses of their compliance management systems, we are proactively navigating the issues highlighted by Mr. Antonakes.  It seems clear from the tenor of his remarks that any delay by servicers in achieving full compliance with the new mortgage servicing rules will carry significant risks.  Now that the CFPB has delivered its warning, we suggest that our industry friends make full compliance an immediate priority.

Additional Information: February 2014
CFPB sends warning to mortgage servicers

December 5th 2013

New Consumer Financial Protection Bureau (CFPB) regulations to rein in the mortgage market are simple to understand and easy to follow, according to the agency's chief.

CFPB Director Richard Cordray defended the regulations at a Consumer Federation of America event on Thursday, and promised that the bureau would be “vigilant“ in enforcing the “back to basics” regulations for mortgage lenders and servicers, according to prepared remarks.

On Jan. 10, the bureau’s new mortgage rules go into effect, requiring lenders to affirm that their borrowers are able to pay back the mortgages they take out.

“These are bedrock concepts backed by our new common-sense rules,” Cordray said.

Financial institutions and lawmakers on both sides of the aisle have worried that the regulations are too onerous, especially for small banks and credit unions. The regulations' requirements could force some institutions to cut back their mortgage lending, they warn.

The CFPB has also issued regulations for mortgage servicers who collect payments and work with borrowers to pay off their loans.

On the same day the mortgage lending rules go into effect in January, servicers will also have restrictions about when they credit mortgage payments they receive, and force them to investigate any errors reported on consumers’ bills. Other rules affect the way mortgage lenders have to help distressed and delinquent borrowers.

“Our new rules will help every borrower, whether or not they struggle to make their payments, by bringing greater transparency to the market,” Cordray said.

Those, too, have become the subject of criticism from mortgage lenders that say they could make it harder to hand out housing loans.

On Thursday, Cordray fired back against those concerns.

“They amount to little more than taking the time to work directly with your customers to address their circumstances,” he said. “In short, our rule means simply that mortgage servicers must now do their jobs.”

Additional Information: December 2013
Consumer bureau defends ‘back to basics’ rules

November 26th 2013

For more than 30 years, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage.  The law also has generally required two different forms at or shortly before closing on the loan.  Two different Federal agencies developed these forms separately, under two Federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent.  Not surprisingly, consumers often find the forms confusing.  It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.
Additional Information: November 26th 2013
RESPA-TILA Final Rule Nov 2013

November 12th 2013

Consumer Financial Protection Bureau Director Richard Cordray acknowledged concerns Tuesday about how the agency is regulating indirect auto lenders, vowing to be more transparent about its oversight.

The agency has been under fire since a March bulletin, which was not subject to public comment, that said the agency would hold auto lenders responsible for any discrimination made by partner dealers, whether it was intentional or not. Cordray said the agency was holding a field hearing Thursday on the issue designed to engage directly with auto lenders.

Additional Information: November 12th 2013
Cordray Vows "Openness" with Auto Lenders

September 2013

The Consumer Financial Protection Bureau (CFPB or Bureau) presents this Semi-Annual Report to the President, Congress, and the American people, in fulfillment of its statutory responsibility and commitment to accountability and transparency. This report provides an update on the Bureau’s mission, activities, accomplishments, and publications since the last Semi-Annual Report, and provides additional information required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or Dodd-Frank Act).

The Dodd-Frank Act created the Bureau as the nation’s first federal agency with a mission of focusing solely on consumer financial protection and making consumer financial markets work for American consumers, responsible businesses, and the economy as a whole. In the wake of the recent financial crisis, the President and Congress recognized the need to address widespread failures in consumer protection and the rapid growth in irresponsible lending practices that preceded the crisis. To remedy these failures, the Dodd-Frank Act consolidated most Federal consumer financial protection authority in the Bureau.2 The Dodd-Frank Act charged the Bureau with, among other things:

  • Ensuring that consumers have timely and understandable information to make responsible decisions about financial transactions;

CFPB Announcement: September 2013
CFPB Semi-Annual Report

September 13th 2013

The Consumer Financial Protection Bureau late last week finalized amendments and clarifications to its January mortgage rules.

CFPB Director Richard Cordray said the amendments will help industry comply and to better protect consumers, answering questions that have been identified during the implementation process.

“Our mortgage rules were designed to eliminate irresponsible practices and foster a thriving, more sustainable marketplace,” Cordray said. “Today’s rule amends and clarifies parts of our mortgage rules to ensure a smoother implementation process, which is helpful to both businesses and consumers.”

**Note** - No changes were made to force placed insurance.

CFPB Announcement: September 13th 2013
CFPB Issues 'Final' Amendments to Mortgage Rules

July 8th 2013

The CFPB released the first version of the 2013 Dodd-Frank Mortgage Rules Readiness Guide. The guide is made for use by financial institutions of all sizes to evaluate their preparedness to be compliant and to maintain compliance with the upcoming mortgage rule changes. According to the CFPB, the guide serves three purposes:

  • Assists regulated entities in achieving compliance with the mortgage rules. 
  • Highlights key issue areas that may be closely examined during a review. 
  • Focuses the industry and examiners on key elements of a compliance management system that may warrant review, modification, or other enhancement.
June 21st 2013

Republican lawmakers are calling on the Consumer Financial Protection Bureau to explain its rationale behind new fair lending guidelines for auto lenders.

The House Republicans, including 27 members of the Financial Services Committee, sent a letter dated Thursday to the bureau expressing concern about the intent and methodology of the guidelines. In March, the CFPB told indirect auto lenders to improve oversight of dealers they work with, warning them of reported interest rate disparities in car loans given to minority borrowers.

CFPB Announcement: June 21st 2013
GOP Seeks Data on What Prompted CFPB Auto Guidance

May 16th 2013

The CFPB issued a final rule clarifying and making technical amendments to the 2013 Escrows Final Rule issued by the Bureau this past January. This is the first final rule in connection with the CFPB's planned issuances to clarify and provide additional guidance about the mortgage rules issued in January. It is based on a proposed rule issued in April.

This final rule has two primary purposes:

Maintaining Consumer Protections
The 2013 Escrows Final Rule amends an existing rule that provides protections regarding assessments of consumers’ ability to repay and prepayment penalties on certain “higher-priced” mortgage loans. The Dodd-Frank Act and certain of the other new mortgage rules issued in January expand and strengthen the requirements concerning ability to repay and prepayment penalties. However, the 2013 Escrows Final Rule as adopted in January can be read to cut off the old protections before the new expanded protections take effect. This would create a six-month period when those consumer protections would not apply. This final rule establishes a temporary provision to ensure existing protections remain in place for higher-priced mortgage loans until the expanded provisions take effect in January 2014.

“Rural” and “Underserved” Definitions
The CFPB is also clarifying how to determine whether or not a county is considered “rural” or “underserved” for purposes of applying an exemption in the 2013 Escrows Final Rule and special provisions adopted in three other Dodd-Frank Act mortgage rules issued in January. The CFPB also provides illustrations of how to do the determinations to facilitate compliance. The determinations are made based on currently applicable Urban Influence Codes or UICs, which are established by the USDA’s Economic Research Service (for “rural”), or based on HMDA data (for “underserved”). The CFPB used the changes to compile the final 2013 rural or underserved counties list (which applies with respect to the exemption in the 2013 Escrows Final Rule posted on their website to mortgages closed from June 1, 2013 through December 31, 2013.)

During the rulemaking process for these clarifications, the Bureau received many comments suggesting major changes to the rural and underserved definitions and related provisions. These comments were outside the scope of the narrow technical changes the rule was proposing. However, the Bureau plans to finalize very soon the proposed rule the Bureau issued concurrently with the Ability to Repay/QM Rule in January, and it will address questions of further flexibility for small institutions.

April 4th 2013

The Consumer Financial Protection Bureau (CFPB) announced four enforcement actions to end what the Bureau believes to be improper kickbacks paid by mortgage insurers to mortgage lenders in exchange for business. The CFPB filed complaints and proposed consent orders against four national mortgage insurance companies in order to stop these practices, which have been prevalent for more than 10 years. The proposed orders require the four mortgage insurers to pay more than $15 million in penalties to the CFPB.

“Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers,” said CFPB Director Richard Cordray. “We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law.”

The CFPB alleges that four mortgage insurance companies violated federal consumer financial law by engaging in widespread kickback arrangements with lenders across the country. The CFPB believes the mortgage insurers named in today’s enforcement actions provided kickbacks to mortgage lenders by purchasing captive reinsurance that was essentially worthless but was designed to make a profit for the lenders.

The four companies named in today’s actions are Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. In exchange for kickbacks, these mortgage insurers received lucrative business referrals from lenders. These types of kickbacks were a common practice in the years leading up to the financial crisis. These four companies were key players during that time.

March 21st 2013

At the CBA Live conference last week in Phoenix, CFPB Assistant Director for Fair Lending & Equal Opportunity Patrice Ficklin announced that the CFPB will be using ECOA to regulate dealer mark-up.

January 17th 2013

Consumer finance agency finalizes rules to protect mortgage borrowers from runarounds, fees - The government’s consumer lending watchdog finalized new rules Thursday aimed at protecting homeowners from shoddy service and unexpected fees charged by companies that collect their monthly mortgage payments.

Mortgage servicing companies will be required to provide clear monthly billing statements, warn borrowers before interest rate hikes and actively help them avoid foreclosure, the Consumer Financial Protection Bureau said. The rules also require companies to credit people’s payments promptly, swiftly correct errors and keep better internal records.
August 10th 2012

CFPB released TILA and RESPA Mortgage Servicing Proposals that were put out for public comment.  The complete proposals highlighted for force-placed insurance are listed below. 

The TILA Proposal did not address force-placed insurance in detail, however, the RESPA proposal detailed the requirements.  We have included the borrower notification form letters that CFPB is proposing.  These letters are listed below. 

RESPA Highlights
1. Fees - related to service actually performed
a. Bureau finds commissions "problematic"
b. Bona-fide & reasonable
2. Exemptions
a. Flood Insurance
3. Escrow
a. Homeowner policy renewal for delinquent borrowers
i. Must be renewed by servicer
ii. Not subject to force-placed ins
4. Notification
a. 45 day cycle - 3 letters
b. Good faith estimate
c. Grace periods

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