2012 – Page 3 – Consumer Financial Services Watch

It Takes Two to Tango: The Supreme Court Rejects Unilateral Liability under Section 8(b) of RESPA

Jun 28 2012

By: Phillip L. Schulman, Andrew C. Glass, Holly Spencer Bunting, Roger L. Smerage

The United States Supreme Court has unanimously ruled that a real estate settlement service provider does not violate Section 8(b) [1] of the Real Estate Settlement Procedures Act (“RESPA”) where it keeps for itself an allegedly “unearned fee.” Instead, a provider violates Section 8(b) when it divides a fee with another entity which did not provide services in connection with the fee. The Court’s decision, Freeman v. Quicken Loans, Inc., [2] resolves a decade-old split among the lower federal appellate courts. Moreover, the decision makes clear that policy statements promulgated by the U.S. Department of Housing and Urban Development (“HUD”), applying Section 8(b) to a broad range of conduct, are not entitled to deference given their conflict with the unambiguous language of the statute itself. Nevertheless, the Court’s holding is limited to assessing unearned fees in light of RESPA, and settlement service providers should be aware that charging such fees may run afoul of other laws and enforcement mechanisms.

To view the complete alert online, click here.

Defining Prudent Underwriting: An International Struggle

Jun 28 2012

By: Laurence E. Platt, Kristie D. Kully, Andrew L. Caplan

In an attempt to insulate credit markets from the high-risk residential mortgage lending activities that threatened the global financial system in 2008, regulators both in the United States and elsewhere are seeking to impose stricter residential mortgage underwriting standards. Specifically, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act[1] (“Dodd-Frank”) in part to create “Grade-A” designations for residential mortgage loans that meet stringent underwriting requirements and other criteria. Those loans may enjoy a presumption of compliance with certain federal laws, and some may also be exempt from economic risk retention requirements that will apply to other loans.

To view the complete alert online, click here.

Preemption Decision is Great News for National Banks and Federal Savings Associations

Jun 25 2012

By: David L. Beam

Last Thursday, the California Supreme Court handed down what arguably is the most important decision on federal preemption for national banks since the Dodd-Frank Act was passed in mid-2010. The specific issue in Parks v. MBNA America Bank, N.A., 2012 Cal. LEXIS 5795 (Cal. June 21, 2012), was whether California could require national banks to place certain disclosures on credit card “convenience checks.” MBNA, the defendant, argued that the California law was preempted for national banks by the National Bank Act. The state court of appeals had disagreed. Read More

DOJ Doubles Down on Disparate Impact, Settles Discriminatory Pricing Case with SunTrust Mortgage

Jun 07 2012

By: Melanie Hibbs Brody, David G. McDonough, Jr.

The Department of Justice recently announced a $21 million settlement with SunTrust Mortgage over allegations that SunTrust’s neutral and non-discriminatory policy of granting loan originators discretionary pricing authority somehow resulted in loans to minority borrowers to be priced higher than loans to White borrowers. DOJ based its case on the disparate impact theory of discrimination; as such, the Department did not allege that SunTrust treated minority borrowers in a disparate or discriminatory manner. Instead, the case follows DOJ’s practice of filing fair lending cases solely on statistical analyses of loan data and without alleging that any person treated a borrower differently because of race or ethnicity. Read More

Consumer Financial Protection Bureau Requests Comment on Extending Regulation E to Cover GPR Cards

Jun 04 2012

By: David L. Beam, Steven M. Kaplan, Kathryn M. Baugher

Last week, the Consumer Financial Protection Bureau released an Advance Notice of Proposed Rulemaking (ANPR) on the subject of general purpose reloadable (GPR) cards. In the ANPR, the Bureau announced that it plans to issue a proposal to extend Regulation E to cover GPR cards. The ANPR poses a series of questions and gives the public an opportunity to submit comments. Comments must be received by July 23, 2012.

CFPB Proposes Method for Extending Supervisory Power to “Risky” Nonbanks

Jun 01 2012

By: Eric Mitzenmacher

The Dodd-Frank Act empowers the CFPB to supervise three classes of nonbank covered persons: (1) participants in certain enumerated consumer financial markets including consumer mortgages, private education loans, and payday loans; (2) larger participants in other consumer financial markets, as further defined by CFPB rulemaking; and (3) other nonbanks engaging in “conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”

U.S. Supreme Court Ends the RESPA Section 8(b) Debate: It Takes Two to Tango

May 25 2012

By: Holly Spencer Bunting, Phillip L. Schulman

The split in the federal Circuit Courts over the interpretation of Section 8(b) of RESPA has been resolved, and the result is that it takes two to tango for a Section 8(b) violation. In a decision made on May 24, 2012 in Freeman v. Quicken Loans, Inc., the U.S. Supreme Court held that a charge for settlement services must be divided between two or more persons to constitute a violation of Section 8(b). This is welcome news for settlement service providers, who can rest assured that their own prices, whether as part of a mark-up of a third-party fee or their own unilateral charges, cannot violate Section 8(b) of RESPA. Read More

CFPB Proposes Strict Controls on Discount Points, Origination Fees, and Broker Compensation

May 16 2012

By: Kris D. Kully

The Consumer Financial Protection Bureau (CFPB) is considering putting strict limits on a creditor’s ability to price its mortgage loans, and on a consumer’s ability to choose among pricing options.

By way of implementing the far-reaching provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is proposing to require that when a creditor pays a mortgage loan originator’s compensation (which includes most mortgage loan transactions), any up-front amounts the consumer pays for the loan must be in the form of bona fide discount points that reduce the interest rate or a flat origination fee that does not vary with the loan amount.

FTC Mobile Payments Workshop: Providers Are Poised to Take Steps Forward. How Will Regulators Respond?

May 02 2012

By: Eric Mitzenmacher

On April 26th, the FTC gathered private sector representatives, regulators, and academics for a workshop to discuss the state of the mobile payment industry. Some commentary has interpreted regulators’ comments at the workshop to be a signal that regulators intend to use a “light touch” as the industry matures, but the phrase only partially hits the mark. Read More

Conflicted Out: When Must a Servicer Follow FHA Guidelines over the Global Foreclosure Settlement Servicing Standards?

Apr 30 2012

By: Krista Cooley, Rebecca Lobenherz

The National Servicing Standards, outlined in the March 2012 Global Foreclosure Settlement, are difficult to reconcile with the already stringent servicing requirements in place for the Federal Housing Administration’s (“FHA”) single family loan insurance program. The National Servicing Standards are expressly subject to and must be interpreted in accordance with applicable federal, state and local laws, rules and regulations, and the terms and provisions of the requirements, binding directives and investor guidelines of the mortgage insurer, including FHA. In the event of a conflict between such requirements and the National Servicing Standards such that a servicer cannot comply with the National Servicing Standards without violating these requirements or being subject to adverse action, then the servicer must document such conflicts and notify the monitoring committee that the servicer intends to comply with the FHA requirements to the extent necessary to eliminate the conflict. Read More

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