Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

On June 30, 2010, the House of Representatives approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Financial Reform Act, a comprehensive and expansive set of financial reforms widely thought to be the toughest changes to financial regulation in the United States since the Great Depression.  The Senate approved the Financial Reform Act on July 15, 2010 and President Obama signed it into law on July 21, 2010.  Among the key provisions of the Financial Reform Act is the creation of the Bureau of Consumer Financial Protection, which will have authority over a wide range of participants in the consumer finance industry.  This Update highlights the salient features of the Financial Reform Act as it relates to the consumer finance industry.

Read more about the Bureau, including its rulemaking and enforcement authority, at the Perkins Coie News page:  http://www.perkinscoie.com/news/pubs_detail.aspx?op=updates&publication=2709

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Although garnering relatively little attention to date, included in the Dodd-Frank Financial Reform bill is a provision (Section 502) creating the "Federal Insurance Office" (FIO).  The FIO is charged with, among other things, "monitor[ing] the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance..."  The FIO has authority to "receive and collect data and information on and from the insurance industry and insurers" and to "analyze and disseminate data and information."  This data review component offers federal regulators an opportunity to analyze the information for potential insurance redlining similar to agency review of Home Mortgage Disclosure Act (HMDA) data for lending discrimination.  Federal agencies (and class action plaintiffs' attorneys) have for many years  used HMDA to support investigations and lawsuits against lenders.  The creation of the FIO and the data review process may lead to similar results.

As professor Gregory D. Squires recently wrote in comparing the FIO's data review function to banking agency review of HMDA: 

This is the time for the federal government to finally collect from the insurance industry the kind of information it has long collected from mortgage lenders under the Home Mortgage Disclosure Act (HMDA). For more than three decades the Feds have collected information on the number and types of home loans most mortgage lenders have made in the nation's metropolitan areas along with the census tract or neighborhood in which the homes were located. HMDA has been modified so now lenders are required to disclose the race, gender, and income of all applicants, whether their application was approved or denied, and for certain high cost loans the interest rate on those loans.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CNNMoney.com reports that the July 21, 2010 quarterly report issued by the Office of the Special Inspector General for TARP (SIGTARP) highlights that office's efforts to prosecute mortgage fraud.  The report touts SIGTARP's investigative unit, which Special Inspector General Neil Barofsky said in his report has turned into a "sophisticated white collar investigative agency."  The report also highlights the government's June 2010 bust of a billion-dollar mortgage fraud ring that led to the arrest of the former chief of wholesale mortgage lender Taylor Bean & Whitaker on charges he "operated a sophisticated shell game" that sought to prop up his failing enterprise at the expense of investors and taxpayers.  Through June, Barofsky's agency was pursuing 104 criminal and civil investigations. 

SIGTARP was established by the Emergency Economic Stabilization Act of 2008.  Under that Act,  the Special Inspector General has the responsibility, among other things, to conduct, supervise and coordinate audits and investigations of the purchase, management and sale of assets under TARP.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On July 15, 2010 the U.S. Senate passed, and on July 21 the President signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Included in the new legislation are a number of provisions that will impact consumer lenders, and in particular, residential mortgage lenders:

• Lenders Must Ensure a Borrower’s Ability to Repay.  Establishes federal minimum underwriting standards for mortgages, including a requirement that lenders consider borrowers ability to repay. (Section 1411) 
• Prohibits Unfair Lending Practices.  Prohibits a number of lending practices that are commonly associated with "predatory lending," including the payment of “yield spread premiums” that lenders pay to brokers, and pre-payment penalties.  (Section 1403) 
• Establishes Penalties for Lending Violations.  Significantly increases penalties for lenders and mortgage brokers that violate new standards.  Also expands the statute of limitations for certain claims brought under TILA from one year to three years.  (Section 1416) 
• Expands Consumer Protections for "High-Cost Mortgages." Expands the number of loans subject to the enhanced disclosures and protections required for high-cost loans by lowering the interest rate and the points and fees that trigger those protections.  (Section 1431) 
• Requires Additional Disclosures. Additional disclosures are required by lenders and servicers, including disclose of the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.
• Housing Counseling: Establishes an Office of Housing Counseling within HUD to boost home ownership and rental housing counseling.  (Section 1441-1445)

The Act also creates the Consumer Finance Protection Bureau, which will have broad rulemaking, enforcement and regulatory authority:

• Independent Rule Writing.  The Bureau has rule making authority for consumer protections governing all financial institutions — banks and nonbanks — offering consumer financial services or products.
• Examination and Enforcement. The Bureau has authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion, and all mortgage-related businesses, including lenders, servicers, mortgage brokers, in addition to student lenders and other large non-bank financial companies. Banks and Credit Unions with assets of $10 billion or less will be examined for consumer complaints by their appropriate regulator.
• Education.   Creates a new Office of Financial Literacy.
• Consumer Hotline. Creates a national consumer complaint hotline for consumers to  report problems with financial services.
• Consolidation.  Makes one office accountable for consumer protections over large banks and nonbank financial institutions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Associated Press reports that Illinois Attorney General Lisa Madigan has sued Countrywide Home Loans, alleging the company discriminated against African American and Latino borrowers in Illinois between 2005 and 2007.  The complaint includes allegations that Countrywide charged African American and Latino borrowers higher rates and fees compared to similarly situated white borrowers.   The complaint states that Countrywide engaged "in practices that resulted in a disparate impact and disparate treatment of African American and Latino borrowers.  The complaint also alleges that Countrywide utilized lending standards that had no economic basis and were discriminatory in effect..."

While the complaint includes allegations not unfamiliar in lending discrimination cases, it may spark important legal analysis regarding the use of the disparate impact theory as the sole basis to provide lending discrimination.  See prior posting  - "AAG Perez Reiterates DOJ's Emphasis on Lending Discrimination Enforcement," June 24, 2010.

• Email This
• Print
• Comments
• Trackbacks
• Share Link