2012 – Page 2 – Consumer Financial Services Watch

Bureau Considers Enforceability of State Unclaimed Property Laws for Gift Cards

Aug 24 2012

The gift card provisions of the Electronic Funds Transfer Act (“EFTA”) and Regulation E (which implements the EFTA) do not allow funds on most gift cards to expire sooner than five years after issuance (or, if the card is reloadable, five years after the last load). But the unclaimed property laws in some states require gift card issuers to turn over the funds on dormant gift cards sooner than five years after the last activity. The state unclaimed property laws generally relieve the issuer of the obligation to honor a card after it has turned the funds over to the state. Instead, the owner of the card must apply to the state treasurer to recover the funds. (If the card issuer decides to honor the card anyway—and many do for customer service reasons—then the issuer may apply to the state for reimbursement.)

CFPB Legislates Loss Mitigation Through Proposed Servicing Regulations

Aug 13 2012

By: Laurence E. Platt

For those who wondered how the Consumer Financial Protection Bureau (the “Bureau”) would seek to convert portions of the global foreclosure settlement into federal law, last Friday’s proposed servicing rules provide an answer. The Dodd-Frank Act (“DFA”) amended the Real Estate Settlement Procedures Act (“RESPA”) in several ways to address discrete loan servicing issues, such as escrow accounts, flood insurance, and qualified written requests. What it did not do, however, is address loss mitigation or foreclosure. Many thought that the Bureau would use its general authority to issue regulations prohibiting unfair, deceptive or abusive acts and practices to craft loss mitigation requirements, but that authority would not afford consumers with a federal private right of action. Read More

The Consumer Financial Protection Bureau: A First Year Retrospective by K&L Gates

Jul 24 2012

By: Laurence E. Platt, Steven M. Kaplan, Stephanie C. Robinson, Kristie D. Kully, David L. Beam, Melanie Hibbs Brody, Jonathan D. Jaffe, Nanci L. Weissgold, Holly Spencer Bunting, Kerri M. Smith, David A. Tallman, Eric Mitzenmacher, David G. McDonough, Jr., Rebecca Lobenherz, John L. Longstreth, Krista Cooley, Paul F. Hancock, David I. Monteiro, Michael J. Missal, Shanda N. Hastings, Noam A. Kutler, Matt T. Morley, Stephen J. Crimmins, Amanda B. Kostner, Karen Kazmerzak, Bruce J. Heiman, Daniel F. C. Crowley, Akilah Green

As the Consumer Financial Protection Bureau celebrates its first birthday, financial service providers mark the occasion with solemnity. It has been quite a turbulent year with the Bureau, which has made the most of its new statutory authority to issue several final and proposed regulations, initiate its supervisory oversight of the previously unsupervised, and assume the supervisory function of the federal banking agencies for large banks. It has also laid the groundwork for what is expected to be an active enforcement environment.

This retrospective of the Bureau’s first year of operations describes the Bureau’s most consequential actions since its launch on July 21, 2011. Its wide-ranging activities over the past year reflect a mandate that spans numerous industries within the consumer financial services sphere, including some industries that previously went unregulated. Among the topics covered in our retrospective are rulemaking in the mortgage market and other markets such as prepaid cards, supervision and examination of banks and nonbanks, enforcement of federal consumer financial laws, and the debate over the agency’s legitimacy.

To download the retrospective, click here.

Circuit Court Declares Bank’s Wire Transfer Security to Be Commercially Unreasonable Under UCC Article 4A

Jul 18 2012

By: Holly K. Towle

In 2010 we reported on the “Wave of Online Banking Fraud Targeting Businesses” that use online banking relationships to make electronic fund transfers by wire or ACH. The fraudsters use malware such as key-loggers to steal access credentials and then start draining the business’ account. In the U.S., the transfers are governed by Article 4A of the Uniform Commercial Code (“UCC”). Consumer accounts are not impacted by Article 4A: they are eligible for the consumer protections afforded by the federal Electronic Funds Transfer Act and Regulation E, which limit a consumer’s exposure to fraudulent transfers to a maximum of $50 as long as the consumer promptly reports the fraudulent activity. Read More

CFPB Proposes Regulations to Combine RESPA and TILA Mortgage Disclosures: Buckle Up for the Long-Anticipated Ride

Jul 17 2012

By: Holly Spencer Bunting

In one of the most anticipated actions of the Consumer Financial Protection Bureau’s “Know Before You Owe” campaign, on July 9, 2012, the CFPB published 1,099 pages of a proposed regulation to combine mortgage disclosure forms required under the Real Estate Settlement Procedures Act (“RESPA”) and the Truth in Lending Act (“TILA”). As the Dodd-Frank Wall Street Reform and Consumer Protection Act charged the CFPB with creating combined disclosure forms and proposing regulations implementing such forms by July 21, 2012, the Bureau met that deadline with a few weeks to spare. Now mortgage companies, title insurance and settlement agents, real estate brokers, and all other interested parties are digging in to the proposed regulations in an attempt to understand how the Bureau’s proposed changes could impact their businesses. Industry participants should have plenty of time to digest the proposed regulations; public comments on the proposed changes to the calculation of the finance charge are due on September 7, 2012, while all other comments on the proposed combined disclosures are due on November 6, 2012. Read More

Rural Housing Service Publishes Final Rule Regarding New Annual Fee

Jul 11 2012

By: Kathryn M. Baugher

The U.S. Department of Agriculture’s Rural Housing Service (RHS) today published a final rule implementing the new annual fee that will be charged on all RHS-guaranteed single family housing loans obligated on or after October 1, 2011.

The Housing Act of 1949 was amended in July 2010 to authorize RHS to charge an annual fee. The purpose of the annual fee is to make the RHS loan guarantee program “subsidy neutral,” meaning that it will not require taxpayer funding to continue operating at its current size. While RHS acknowledges that the annual fee will increase the cost of RHS-guaranteed loans for borrowers (by approximately $20 per month for the average loan), RHS believes that the annual fee is necessary to avoid a reduction in the size of the program, which would result in fewer RHS-guaranteed loans being made. Read More

Supreme Court’s No Decision is a Decision in First American v. Edwards

Jun 29 2012

By: Phillip L. Schulman, Emily J. Booth

Must a consumer suffer actual harm to sue the settlement service providers involved in his or her real estate mortgage transaction for engaging in activities that violate the Real Estate Settlement Procedures Act (RESPA), or is the mere allegation of a statutory violation sufficient to get the consumer into court? The U.S. Supreme Court’s decision in First American v. Edwards not to consider the standing issue under RESPA leaves the settlement service industry at the mercy of the lower courts and effectively invites private plaintiffs to sue settlement service providers under RESPA whenever a statutory violation is suspected regardless of whether any harm has resulted. Read More

The Massachusetts Supreme Judicial Court Issues Its Long-Anticipated Eaton Decision

Jun 28 2012

By: Phoebe S. Winder

In a long-anticipated decision, the Massachusetts Supreme Judicial Court (“SJC”) ruled in Eaton v. Federal National Mortgage Ass’n, 2012 WL 2349008 (June 22, 2012) (“Eaton”) that when conducting a non-judicial foreclosure in Massachusetts, a foreclosing entity must not only hold the mortgage – it also must hold the note or be authorized to act on behalf of the note holder. But if the goal of consumer advocates was to void a large volume of foreclosures, then they failed in that goal, and Eaton should be seen as a victory for those who have foreclosed, or who are seeking to foreclose, on mortgage loans in Massachusetts. Read More

Court Upholds Labor Department Interpretation That Mortgage Loan Officers Are Not Exempt From Overtime

Jun 28 2012

By: Thomas H. Petrides, John L. Longstreth

A federal district judge in Washington, D.C. has upheld an “Administrator’s Interpretation” issued in 2010 by the U.S. Department of Labor (“DOL”) that loan officers in the mortgage banking industry typically do not qualify as exempt employees under the administrative exemption of the federal Fair Labor Standards Act (“FLSA”). The Mortgage Bankers Association (“MBA”) had challenged the March 24, 2010 Administrator’s Interpretation (“Interpretation”) issued by the Acting Administrator of DOL’s Wage and Hour Division because the Interpretation had reversed and rescinded a contrary DOL Opinion Letter issued in 2006 that had concluded mortgage loan officers were generally exempt under the administrative exemption. However, Judge Reggie B. Walton ruled on June 6, 2012 that the 2010 Interpretation was not inconsistent with the FLSA regulations and was not arbitrary, capricious, or otherwise unlawful. [1] The court thus let stand the DOL’s Interpretation that employees performing the typical duties of a mortgage loan officer do not qualify for the administrative exemption and are therefore entitled to receive minimum wages and overtime compensation under the protections of the FLSA. [2] The MBA has the right to appeal this decision to the D.C. Circuit.

To view the complete alert online, click here.

Proposed Basel III Capital Rules for Mortgage Loans Would Further Push Mortgage Market to Homogeneous Products

Jun 28 2012

By: Laurence E. Platt, Stanley V. Ragalevsky, Sean P. Mahoney

Banks that are concerned about potential fair lending claims if they refuse to make residential mortgage loans that are not “qualified mortgages” or “qualified residential mortgage loans” should be equally concerned about the new proposed bank capital rules. On June 7, 2012, the Federal Reserve approved for publication three sets of proposed regulations to revise the risk based capital rules for banks to make them consistent with the new international capital standard, generally known as Basel III, and certain requirements of the Dodd-Frank Act. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation followed suit on June 12, 2012. Conventional residential mortgage loans with loan-to-value ratios in excess of 80%, regardless of the presence of private mortgage insurance, could trigger material adverse capital requirements if the loans are held for investment and do not comply with certain regulatory underwriting criteria. Such loans could present the legal risk of loss under the “ability to repay” rules, the credit risk of loss under the “risk retention” rules and now increased capital charges under the implementation of Basel III.

To view the complete alert online, click here.

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