President Signs Financial Reform Bill Including Increased Consumer Protections
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.
