Supreme Court to Decide Whether Fair Housing Act Allows Disparate Impact Theory

On June 17, 2013, the U.S. Supreme Court agreed to consider whether a Fair Housing Act violation may be established under the disparate impact theory, which focuses on discriminatory effects not discriminatory intent.  In Mount Holly v. Mount Holly Gardens Citizens in Action, the Supreme Court will consider whether a New Jersey township's plan to redevelop lower income housing violated the Fair Housing Act because it would result in less affordable housing for minorities.  The Court is expected to decide whether liability under the Fair Housing Act may be established by showing that a neutral practice has a discriminatory effect.  Oral argument and a ruling is expected during the Court's next term, which begins in October and ends in June 2014.

The Supreme Court limited the review to the availability of the disparate impact theory under the Fair Housing Act, and did not grant review on a burden-shifting question that arises in those types of cases.

The case comes at a critical time for lenders, who argue that new mortgage standards from HUD  --which finalized disparate impact rules under the Fair Housing earlier this year-- and the CFPB will unjustifiably increase their liability in bias claims even when there is no evidence of intent to discriminate.

Township of Mount Holly v. Mt. Holly Gardens Citizens in Action Inc., U.S., No. 11-1507, cert. granted 6/17/13.

Read more:  Reuters ("Justices to hear New Jersey fair housing case") 

                        latimes.com ("Supreme Court to hear case on housing discrimination law")

                       

 

 

 

CFPB Referral Results in DOJ Criminal Action

On May 7, the U.S. Attorney for the Southern District of New York  announced the filing of criminal mail and wire fraud charges against a debt settlement firm (Mission Settlement Agency), along with the firm's owner and three  employees. The government alleges that the defendants engaged in a multi-million dollar scheme involving more than 1,200 customers who paid the company fees for its services.  The charges include allegations that the company lied to prospective customers about fees charged for the company’s debt relief products; about the company's purported affiliation with the federal government and credit bureaus; and about the results the company had achieved for its customers.

On the same day the Consumer Financial Protection Bureau (CFPB) announced that a civil complaint had also been filed against the same company and its owner, along with another debt settlement company.  The CFPB complaint alleges that the firms violated the FTC’s Telemarketing Sales Rule and the Dodd-Frank Act by charging consumers illegal advance fees for debt-settlement services. The CFPB seeks an order enjoining the operations, an assessment of civil penalties, and relief for the companys' customers.

According to the CFPB's press release, the agency initiated its investigation into these matters in July 2012, and thereafter made a criminal referral to the U.S. Attorney's Office.  The release states that the CFPB "is required by the Dodd-Frank Act to refer evidence of criminal activity to the Department of Justice. In connection with these actions, the CFPB has also received substantial assistance from the New York Office of the U.S. Postal Inspection Service."

CFPB Releases Unverified Consumer Complaint Database

On March 28, 2013, the Consumer Financial Protection Bureau (CFPB) published a database containing over 90,000 consumer complaints lodged with the agency.  According to the CFPB press release announcing the publication, the public may search the complaints through the CFPB's website database portal.  The database includes more than 1 million data points covering 450 companies. The information in the database includes the nature of the complaint, the company’s response, and whether the consumer disputed the company’s response.

The CFPB, however, does not substantiate or in any way attempt to verify whether the consumer's allegations have any merit before it is publicly posted, according to the CFPB press release.  Instead, the CFPB only verifies that "a commercial relationship between the consumer and the company is substantiated before the complaint is added to the database," according the the CFPB.

David Stevens, the Mortgage Bankers Association's President and CEO, expressed industry concern about the CFPB publishing unverified complaints, stating in letter to MBA members that while the "MBA supports transparency in customer service, and reasonably holding institutions accountable for material mistakes they make.  However, we have raised concerns about the unverified nature of the complaints and the ultimate impact that such a database could have on consumer confidence and public perceptions about financial institutions."

According to the database "Fact Sheet" published by the CFPB, 55% of all complaints concern mortgages and 21% concern credit cards.  Interestingly, student loans--a recent CFPB focus--account for only 3.8% of the complaints received by the agency.

Consumer Financial Protection Bureau Plans to Increases Student Lending Oversight

On March 14, 2013, the Consumer Financial Protection Bureau (CFPB) announced that it had proposed a new regulation that, if it becomes final, will give the CFPB authority to directly supervise non-bank entities that service over one million student loans.  According to a legaltimes.com article, the new rule would cover seven companies that combined service 70% of the student loan market - approximately  forty-nine million federal and private student loans.  The CFPB currently has authority to supervise student loan servicing at larger banks already within its supervisory jurisdiction.

In a press release, CFPB director Richard Corday said, "[t]he student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers.  Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly by their servicers.”

A copy of the proposed rule can be found at: http://files.consumerfinance.gov/f/201303_cfpb_nprm_larger-participants-student-loan-servicing.pdf

 

Justice Department Settles Discrimination Claim Involving Unsecured Loans

On February 19, 2013, the U.S. Department of Justice's Civil Rights Division announced that it had reached a settlement with Texas Champion Bank to resolve allegations that the bank discriminated against Hispanic borrowers by charging them higher prices for unsecured consumer loans.  Under the agreement, Texas Champion will pay $700,000 in compensation to Hispanic borrowers of unsecured loans.  The settlement, filed as a proposed consent decree, marks an expansion of the Justice Department's recent fair lending cases, which has primarily focused on mortgage lending.  In announcing the settlement, Civil Rights Division Assistant Attorney General Thomas Perez proclaimed that the Texas Champion Bank case shows that federal regulators are prepared to pursue lending discrimination cases in various credit markets. 

“The complaint filed today demonstrates that the Civil Rights Division is committed to fair lending enforcement across the entire spectrum of credit markets,” said Thomas E. Perez, Assistant Attorney General for the Justice Department’s Civil Rights Division. “We commend Texas Champion for working cooperatively with the Justice Department in reaching an appropriate resolution of this case.”

According to the government's press release,  Texas Champion will make payments to approximately 2,000 borrowers.  The bank also agreed to revise its policies, providing training to employees, and monitor its lending activity.

The case originated from a 2010 referral by the Federal Deposit Insurance Corp., according to the DOJ's news release.

Read more:  DOJ Press Release; U.S. v. Texas Champion Bank Complaint and Proposed Consent Order; NBClatino.com.

$9B Foreclosure Settlement Finalized

On February 28, 2013, federal regulators announced the completion of a $9.3 billion deal with 13 banks that will end the foreclosure review settlement process in favor of cash payments and mortgage assistance.  According to Law360, the agreement will cover 4.2 million borrowers.  Each borrower is expected to receive compensation ranging from a few hundred dollars up to $125,000, with direct compensation to borrowers totaling $3.6 billion and an additional $5.7 billion tagged for loan modifications and forgiving deficiency judgments.

The settlement ends the involvement of 13 banks with the Independent Foreclosure Review body, which was originally organized in 2009 to review foreclosures to determine if borrowers were subjected to wrongful foreclosure activity.  That process was criticized on a number of basis, including the length of time it had been taking to complete the review and high expenses associated with the review process. Further, according to WSJ.com, the Office of Comptroller of Currency confirmed that only 4.2% of the files reviewed by the Independent Foreclosure Review body suggested foreclosure errors requiring compensation to borrowers. 

Thursday’s deal covers Aurora Bank FSB, Bank of America, Citibank N.A., Goldman Sachs Group, HSBC North America Holdings Inc., JPMorgan Chase & Co., MetLife Inc., Morgan Stanley & Co., PNC Bank NA, Sovereign Bank NA, SunTrust Banks Inc., U.S. Bank NA and Wells Fargo Bank.  GMAC Mortgage LLC, EverBank Financial Corp. and OneWest Bank FSB did not sign on to the accord and will remain subject to the Independent Foreclosure Review.

Read more at:  USA Today; WSJ.com; FederalReserve.gov; OCC.gov



 

GAO Report: Only 48% of Dodd-Frank Rules Issued

According to a January 23, 2013 report from the U.S. Government Accountability Office (GAO), as of December 2012 federal regulators had finalized less than half of the new rules called for by the  Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.   The report is based on private and regulatory data, including interviews with regulatory agencies.

(The Report is available at the following ling:  "Financial Regulatory Reform - Regulators Have Faced Challenges Finalizing Key Reforms and Unaddressed Areas Pose Potential Risk")

"The implementation of many of these reforms remains ongoing and the effectiveness of some remains an open questions," the GAO stated.  "Although regulators have established mechanisms to facilitate coordination and believe coordination efforts have improved the quality of rulemaking, several regulators indicated that coordination increased the amount of time needed to finalize rulemaking."

The GAO report identified 236 provisions of Dodd-Frank that require regulators to issue rulemakings across nine key areas. According to the report, as of December 2012, regulators had issued final rules for about 48 percent of these provisions.

Securities and Exchange Commission chairman Elisse Walter said in response to the report that implementing Dodd-Frank has been a "major undertaking" but that the SEC has made progress implementing the law.

Read more at Reuters.com ("Fragmented U.S. regulatory system stalls Dodd-Frank rules-GAO"); Law360 ("Half of Dodd-Frank Rules Remain Unfinished, GAO Finds"); GAO Highlight/Summary of Report.

 

CFPB Issues Reg Z Ability-to-Repay. Qualified Mortgage Rules

On January 10, 2013, the Consumer Financial Protection Bureau  (CFPB) issued a final "Ability-to-Repay" rule amending Regulation Z, which implements the Truth in Lending Act.  The new rule implements Sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which generally require creditors to make reasonable, good faith efforts to determine a consumer's ability to repay a loan secured by a dwelling (with exclusions, including open-ended credit; timeshares; and reverse mortgages).  The final rule also establishes certain protections from liability for lenders that make mortgages meeting the "Qualified Mortgages" (QM) standard.  Under the QM rule, lenders will be presumed to have complied with the Ability-to-Repay rule if the loans meet certain requirements relating to upfront points and fees; loan terms that the CFPB refers to as "toxic loan features;" and  debt-to-income ratios.  The final rules also implement Section 1414 of the Dodd-Frank Act, which limits certain prepayment penalties. 

Read more:  Perkins Coie's Financial Services Bulletin:  Actdion at the CFPB ; CFPB Ability to Repay Press Release ; CNNMoney.com
 

 

 

 

Federal Regulators Close to $10B Foreclosure Settlement, Replacing Independent Foreclosure Review

The New York Times  Jessica Silver-Greenberg reports that federal regulators, led by the Office of the Comptroller of the Currency, are close to a $10 billion settlement with 14 banks that would address the government's allegations of improper foreclosure practices.  The settlement would also scrap the existing Independent Foreclosure Review, which was included in 2011 consent orders resolving enforcement actions against 14 large residential mortgage servicers and two third-party vendors for allegedly improper residential mortgage servicing and foreclosure practices.  The foreclosure review process was intended to identify examples of wrongful foreclosures and compensate harmed individuals, but had produced few results and unexpectedly high costs for the reviews .   The Wall Street Journal reported that banks have spent $1.3 billion on consultants to complete the review process, with an additional $2 to $3 billion estimated to complete the process. 

According to The New York Times article, $6 billion of the pending settlement will be earmarked for relief to existing homeowners, including principal reductions and help with refinancing.  Meanwhile, $3.75 billion will go to borrowers who have already lost their home.

Read more at HousingWire.com; Washington Business JournalHuffingtonpost.com

 

CFPB, FTC Targeting "Misleading" Mortgage Ads

On November 19, 2012, the Consumer Financial Protection Bureau (CFPB) and Federal Trade   Commission (FTC) warned mortgage lenders and brokers about publishing "misleading" mortgage advertisements.  According to a CFPB press release, the two agencies have been working together to evaluate compliance with the 2011 Mortgage Acts and Practices Advertising Rule.  The rule prohibits companies from making misleading advertising claims concerning government affiliation, interest rates, costs, the amount of cash or payment available to the borrower, or payments associated with the loan.   As part of its compliance sweep, the agencies reviewed approximately 800 mortgage advertisements from a wide range of media sources, including web sites, Facebook, and news papers, according to the FTC's press release.

Law360 reported that the CFPB issued 12 "warning letters" and opened six investigations, according to CFPB Assistant Director of Enforcement Kent Markus.  The FTC announced that it had sent 20 warning letters to homebuilders, realtors and mortgage lead originators, and had opened 13 investigations.

It is unclear if the two agencies will coordinate their respective investigations.  A lack of coordination may lead to uneven determinations and investigation processes, including how the agencies interpret what is an "unfair or deceptive" practice.  Most likely, the recent announcement signals the beginning of an increase in the number of false advertisement cases brought against mortgage lenders by the federal agencies.

Read more at:  Marketwatch.com; nbcnews.com; Businessweek.com; The Wall Street Journal.