RESPA – Consumer Financial Services Watch

Back from the Dead: The D.C. Circuit Breaths Life Into RESPA Section 8 Safe Harbor

Feb 05 2018

By Brian M. Forbes, David D. Christensen and Matthew N. Lowe

Through its recent en banc decision in PHH Corp. v. Consumer Financial Protection Bureau, the D.C. Circuit reinstated the holding of the three-judge panel regarding the safe harbor provision in Section 8(c) of the Real Estate Settlement Procedures Act (RESPA). Specifically, the court reaffirmed that under Section 8(c), payments made by one settlement service provider to another do not violate Section 8(a), even if made in connection with a captive relationship or a referral, when the payments are reasonably related to the market value of the goods, services, or facilities provided. Although potentially overshadowed by the portion of the en banc court’s holding that the leadership structure of the Consumer Financial Protection Bureau (CFPB) is constitutional, the panel court’s reinstated holding regarding RESPA’s Section 8(c) safe harbor is notable and important for the simple confirmation that the safe harbor “is what it is.”

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“Not A Close Call”: The D.C. Circuit Restores The Safe Harbor To Section 8 of RESPA

Oct 12 2016

By Irene C. Freidel

Noting that “[t]he basic statutory question in this case is not a close call,” the D.C. Circuit has held that a bona fide payment by one settlement service provider to another does not violate Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) if the payment is reasonably related to the market value of the goods, services, or facilities provided. See PHH Corp. v. Consumer Financial Protection Bureau (D.C. Cir. Oct. 11, 2016). The court’s conclusion was mandated by the unambiguous text of Section 8(c) of RESPA, along with the U.S. Department of Housing and Urban Development’s (HUD’s) long-standing interpretations of the same statutory provision.

To read the full alert, click here.

CFPB Issues Notice of Proposed Rulemaking to Clarify “Know Before You Owe”; Some Welcome Guidance on TRID but Cure and Liability Issues Not Addressed

Aug 01 2016

By Jennifer J. Nagle and Hollee M. Watson

On July 29, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a much anticipated Notice of Proposed Rulemaking (“NPRM”) on the TILA-RESPA Integrated Disclosure rule (“TRID” or “Know Before You Owe”), which went into effect on October 3, 2015, and has posed significant implementation challenges. The CFPB previously announced that it would issue proposed rulemaking in an April 28, 2016 letter to mortgage industry trade groups, in which it acknowledged the “many operational challenges” presented by TRID and noted that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

CFPB Director Richard Cordray expects that the “proposed updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process.” See Consumer Financial Protection Bureau Proposes Updates to “Know Before You Owe” Mortgage Disclosure Rule. While the NPRM does contain some helpful guidance, there are also some notable omissions that may disappoint industry participants.

More To Know About “Know Before You Owe”: CFPB Acknowledges TRID Challenges and Announces July 2016 Notice of Proposed Rulemaking

May 10 2016

By Jennifer Janeira Nagle and Hollee Watson

The TILA-RESPA Integrated Disclosure rule (“TRID”) went into effect on October 3, 2015, and has posed significant implementation challenges industry-wide. Those challenges have been articulated to the Consumer Financial Protection Bureau (“CFPB”) by industry participants, trade groups, and congressional leaders alike. In response, the CFPB has issued guidance in the form of letters, webinars, educational videos, guides, and factsheets. Notwithstanding this informal guidance, and despite the CFPB’s assurances that its initial compliance examinations would be “diagnostic and corrective, not punitive,” see December 29, 2015 Letter from CFPB Director Richard Cordray to the Mortgage Bankers Association, the mortgage industry continues to experience uncertainty and risk in its efforts to implement TRID’s sweeping changes to TILA and RESPA. See January 29, 2016 Mortgage Industry Trade Group Letter to CFPB; March 11, 2016 Sen. Bob Corker Letter to CFPB.

In the wake of pressure for more formal guidance, the CFPB recently announced that it will issue a Notice of Proposed Rulemaking (“NPRM”) on TRID in late July. In an April 28, 2016 letter to mortgage industry trade groups, Director Richard Cordray acknowledged that “the implementation of the Know Before You Owe rule poses many operational challenges” and that “there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

TRID/KBYO Rule: The CFPB Tries to Calm Lender Fears

Dec 30 2015

On December 29, 2015, CFPB Director Richard Cordray responded to MBA President and CEO David Stevens’ desperate plea for clarity to address what the MBA claimed is a significant rejection by large aggregators and investors of correspondent lending channel loans for minor or technical TRID errors. In its December 21, 2015 letter to Director Cordray, Mr. Stevens noted that these minor and technical errors include “issues with the alignment or shading of forms, rounding errors, time stamps with the wrong time zone, or check boxes that are improperly completed on the LE.” The MBA feared that without some clarity from the CFPB disruption and liquidity issues would overwhelm the mortgage markets.

You Had Me at “Hello” Letter: Second Circuit Concludes That a RESPA Transfer-of-Servicing Letter Can Be a Communication in Connection with Collection of Debt

Sep 22 2015

By: Brian M. Forbes, Gregory N. Blase, Roger L. Smerage, Edward J. Mikolinski

Sometimes it is just not that easy to say “hello.” A recent decision from the United States Court of Appeals for the Second Circuit highlights the uncertainty mortgage servicers face with respect to Fair Debt Collection Practices Act (“FDCPA”) compliance when notifying borrowers of changes in loan servicing rights, as required by the Real Estate Settlement Procedures Act (“RESPA”). Often the first communication from a new servicer to a borrower is a RESPA transfer-of-servicing letter—sometimes referred to as a “hello” letter. Under the FDCPA, however, a debt collector—which can include a mortgage servicer when the loan serviced was in default at the time servicing rights were acquired—must provide a debt-validation notice within five days of the “initial communication with a consumer in connection with the collection of [a] debt.” See 15 U.S.C. § 1692g(a). Given the multiple regulatory obligations applicable to communications with borrowers, it is no surprise that litigation often ensues (often in the form of class action litigation for statutory damages), and courts struggle to make sense of the various (and sometimes competing) obligations imposed by the FDCPA and RESPA.

Against the Tide: A New Take on RESPA’s Section 8(c)(2) Safe Harbor by the CFPB

Aug 05 2015

By: Irene C. Freidel, Brian M. Forbes, Matthew N. Lowe

Grab a flotation device – the final decision recently issued by Director Richard Cordray of the Consumer Financial Protection Bureau (“CFPB”) in the administrative enforcement proceedings against PHH Corp. (“PHH”) has rocked the boat for the real estate settlement services industry as portions of the decision run directly counter to decades of legal precedent, and the prior writings and Policy Statements issued by the Department of Housing and Urban Development (“HUD”) – the federal agency previously tasked with interpreting the federal Real Estate Settlement Procedures Act (“RESPA”) and enforcing its provisions. As K&L Gates summarized in its June 22, 2015 Alert, the decision addresses a number of topics, including Director Cordray’s interpretation of several provisions of the federal RESPA. And while many of the CFPB’s views and interpretations attempt to expand the scope of RESPA’s reach and are subject to criticism, one of the most significant developments is Director Cordray’s conclusion that Section 8(c)(2) of RESPA is not the type of safe harbor that has long been widely accepted.

CFPB Issues Final Decision in In Re: PHH Corp.: First Agency Decision in Contested Administrative Proceeding

Jun 24 2015

Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued the Director’s final decision in the CFPB’s enforcement action against PHH Corp. (PPH). The decision is the agency’s first ruling in a contested administrative proceeding and sheds light on how the agency—at least under the leadership of Director Richard Cordray—will approach these matters. Most strikingly, Director Cordray overturned several key rulings by the Administrative Law Judge (ALJ), resulting in a decision requiring PHH to pay over $109 million in disgorgement, nearly 17 times as much as the $6.4 million recommended by the ALJ.

Spokeo, Inc. v. Robins: U.S. Supreme Court to Consider Whether Plaintiffs Have Standing to Assert a Statutory Violation without Alleging any Actual Harm

May 05 2015

By: Andrew C. Glass, Brian M. Forbes, Gregory N. Blase, Robert W. Sparkes, III, Roger L. Smerage, Eric W. Lee

The United States Supreme Court has granted certiorari to decide whether a statutory violation alone, unaccompanied by any actual harm to the plaintiff, is sufficient to establish Article III standing. See Spokeo, Inc. v. Robins, No. 13-1339 (U.S. Apr. 27, 2015).

CFPB to Section 8 of RESPA: Will You Be My Valentine?

Feb 16 2015

By: Holly Spencer Bunting, Phillip L. Schulman

The love affair continues between the Consumer Financial Protection Bureau (“CFPB”) and enforcement under Section 8 of the Real Estate Settlement Procedures Act (“RESPA”). On February 10, 2015, the CFPB announced a consent order with NewDay Financial, LLC (“NewDay” or the “Company”) involving alleged violations of the referral fee prohibitions under Section 8 of RESPA and deceptive marketing practices. Specifically, the CFPB alleges that NewDay paid “lead generation” fees to an unnamed veterans’ organization and a third-party company for the endorsement of the Company and referral of the organization’s veteran members to NewDay for mortgage financing. While the Company neither admitted nor denied the CFPB’s findings, the CFPB assessed a $2 million civil money penalty under the consent order. The facts as described in the consent order do not involve a typical marketing services agreement or lead generation agreement, but the consent order makes clear that endorsements of a company expressed through direct mail and email advertisements are considered to be referrals by the CFPB.

To read the full alert, click here.

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