Consumer Financial Services Watch

News and developments related to consumer financial services, litigation, and enforcement.

 

1
Consumer Financial Services Group Highlights Key Legal Issues at MBA Conference
2
K&L Gates/Ernst & Young Symposium Provides Fair Lending and UDAAP Strategies
3
NMLS Advance Notice Release
4
Credit Card Repayment Ability Fix Issued by CFPB
5
Justice Department Brings Criminal Charges Based On CFPB Referral
6
Insurance Coverage for CFPB Investigations and Enforcement Actions
7
HUD Clarifies Procedures for Demanding Indemnification from FHA Lenders Participating in the Lender Insurance Program
8
Consumer Financial Services 2012 Highlights Activities Report
9
Uniform State Test – This Is Not a Joke
10
Senators Attempt to Chip Away at Housing Reform with “Jumpstart GSE Reform Act” and Budget Amendment

Consumer Financial Services Group Highlights Key Legal Issues at MBA Conference

Members of the K&L Gates Consumer Financial Services Group will speak on key topics at the upcoming MBA Legal Issues and Regulatory Compliance Conference in Boca Raton, FL (May 19-22).

Melanie Brody will discuss a topic on everyone’s radar — fair lending and disparate impact — on Tuesday morning (May 21) , with a repeat session on Tuesday afternoon . Melanie also will facilitate a fair lending roundtable discussion on Tuesday afternoon.

Paul Hancock will address major litigation and enforcement trends on Monday afternoon (May 20).

Philip Schulman will speak at the Government Housing round table on Monday afternoon (May 20) about FHA Landmines, including the perils to the Online Annual Certification, the increase in False Claims Act cases against approved mortgagees, and indemnification demands of Lender Insurance participants.

Nanci Weissgold will participate on both the Sunday (May 19) and Tuesday (May 21) panels on the CFPB National Servicing Standards (“NSS”) and other servicing requirements. Come to the dive deep session on Sunday afternoon for an overview of the RESPA and TILA provisions of the NSS. On Tuesday, Nanci will focus on non-default servicing standards, including challenges with implementing error resolution, information requests, record retention and general policy and procedure requirements.

In addition, many of our group’s attorneys are attending the conference. We look forward to seeing you all in Boca!

K&L Gates/Ernst & Young Symposium Provides Fair Lending and UDAAP Strategies

On Thursday, May 9, K&L Gates and Ernst & Young co-sponsored a Fair and Responsible Banking symposium in New York City. The symposium gave our fair lending and UDAAP team a chance to discuss compliance and enforcement issues with over 70 in-house lawyers, fair lending officers and compliance officers from a wide array of institutions. K&L Gates and Ernst & Young strategized with capital markets investors, banks, mortgage lenders, auto lenders, credit card issuers and other unsecured lenders about how to tackle the challenges they face from today’s heightened regulatory scrutiny. The hot topics that were on everyone’s mind included, among other things:

  • developing and implementing effective compliance management systems
  • avoiding and defending disparate impact claims
  • identifying and curtailing unfair, deceptive, and abusive acts and practices
  • understanding and preparing for examinations or investigations
  • managing vendors appropriately

If you would like a copy of the materials from this event, please contact Melanie Brody (melanie.brody@klgates.com) or Stephanie Robinson (stephanie.robinson@klgates.com).

NMLS Advance Notice Release

By: Stacey L. Riggin
Ms. Riggin is not admitted to the practice of law.

On May 8, 2013, the Conference of State Bank Supervisors published release notes for a June 24, 2013 Nationwide Multistate Licensing System (“NMLS” or the “System”) upgrade which includes, among other changes, an advance filing feature that will permit state licensees to file advance notice of certain business changes electronically through the NMLS. Presently, state licensees must submit advance notices in hard copy paper format outside the System. This upgrade should ease the burden on state licensed entities to provide advance notice and, where applicable, secure prior approval of, changes in officers, directors and direct or indirect shareholders. The advance notice filing feature also may be used in connection with a legal name change, office relocation and organizational changes. Not only will this help to facilitate the notification process, but the advance filing feature should significantly enhance the method by which state regulatory agencies can process and approve these changes. This is welcome news to the industry after the release of the upgrade was postponed earlier this year.

Although this change will allow for filings regarding transactions that have a future effective date to be made and processed through the NMLS, the new process will add a layer of complexity to certain transactions where state law only requires that notice be submitted, as the System will require that state regulators check-off a box to approve or accept the change. Administrators of the NMLS have indicated that they are willing to consider a change in the System to distinguish filings requiring approval from those that require mere notice, but those changes cannot be implemented before the “roll-out” of this new feature.

 

Credit Card Repayment Ability Fix Issued by CFPB

By: David A. Tallman , Eric Mitzenmacher

Financial life just got a little bit easier for stay-at-home moms and dads. For over a year and a half, regulations originally promulgated by the Federal Reserve (and reissued by the CFPB) have restricted credit access for “spouses and partners who do not work outside the home,” based on an interpretation of the Credit Card Accountability, Responsibility, and Disclosure Act (the “CARD Act”) that required a creditor to consider a card applicant’s “independent” ability to repay any credit extended. On May 3, the CFPB finalized amendments to Regulation Z that loosen the credit card underwriting standards, allowing consumers over age 21 to qualify based on any income to which they have a “reasonable expectation of access.” By acknowledging that the practical aspects of interfamily relationships may sometimes support a determination that a consumer has an ability to repay even when the consumer may not have a formal legal right to the underlying income or assets, the Bureau acquiesced to the requests of a broad-based coalition of politicians, consumer groups, and credit card issuers to remove an artificial barrier to the ability of stay-at-home spouses and partners to obtain and build credit.

Read More

Justice Department Brings Criminal Charges Based On CFPB Referral

By: Melanie Brody , * Nathan Pysno
Admitted only in Maryland / Not admitted in D.C.

The U.S. Attorney’s Office for the Southern District of New York filed a criminal indictment on May 7, 2013 against Mission Settlement Agency, its owner, and three of its employees. Mission Settlement Agency is a debt settlement company based in New York City. The defendants were charged with mail fraud, wire fraud, and conspiracy to commit mail and wire fraud based on alleged misstatements they made regarding Mission Settlement Agency’s fees, services, and affiliations. The indictment alleged that the fraudulent scheme started in mid-2009 and involved at least 1,200 customers and several million dollars. The defendants allegedly collected millions of dollars in fees from customers who were struggling financially, but did no or little work to manage their clients’ debt or pay their creditors.

This case marks the first time the Justice Department has brought criminal charges based on a referral from the CFPB. Preet Bharara, U.S. Attorney for the Southern District of New York, and CFPB Director Richard Cordray held a joint press conference to discuss the case. This first-ever criminal referral serves as a reminder that the CFPB not only has enforcement powers of its own, but also functions as an industry observer that can, and will, make referrals to other federal and state enforcement agencies.

Insurance Coverage for CFPB Investigations and Enforcement Actions

By: Gregory S. Wright,  Stephanie C. Robinson,  Nanci L. Weissgold

Many companies and individuals that are facing investigations or subsequent enforcement actions by the Consumer Financial Protection Bureau (“CFPB”) will be forced to incur substantial sums to defend such claims, to settle such claims, and/or to pay any judgments. In many cases, companies and individuals may have insurance coverage to pay for such costs, such as Directors and Officers liability insurance (“D&O Policies”) and Errors and Omissions liability insurance (“E&O Policies”). The availability of coverage will turn on the specific contract language in any insurance policy and the specific nature of the CFPB matter at issue.

To read the full alert, click here.

HUD Clarifies Procedures for Demanding Indemnification from FHA Lenders Participating in the Lender Insurance Program

By: Krista Cooley

On Wednesday, HUD issued Mortgagee Letter 2013-10 to implement the Lender Insurance (“LI”) regulation it finalized in January of 2012. As announced in the final regulation, FHA mortgagees participating in the LI program will be required, as a condition of approval for LI authority, to indemnify HUD for self-endorsed loans that HUD deems ineligible for FHA insurance. Mortgagee Letter 2013-10 provides additional guidance on the Department’s policy changes regarding indemnification, which are effective for all loans insured by LI mortgagees on or after April 9, 2013. The Mortgagee Letter and a revised Lender Insurance Guide released Wednesday provide additional guidance regarding LI changes, including LI eligibility criteria and HUD’s processes to monitor, terminate, and reinstate LI authority. Read More

Uniform State Test – This Is Not a Joke

By: Costas A. Avrakotos , *Jeffrey Prost *Robin L. Gieseke
Mr. Prost and Ms. Gieseke are not admitted to the practice of law.

April Fools’ Day, a day traditionally reserved for pranks, trickery, and funny escapades, is upon us.

All joking aside, on this April 1, 2013, the Conference of State Bank Supervisors (“CSBS”) will begin to offer the new Uniform State Test (“UST”) for the licensing of state regulated mortgage loan originators (“MLOs”). Read More

Senators Attempt to Chip Away at Housing Reform with “Jumpstart GSE Reform Act” and Budget Amendment

By: Kristie D. Kully, Andrew L. Caplan

Senators Bob Corker (R-TN), Mark Warner (D-VA), David Vitter (R-LA), and Elizabeth Warren (D-MA) have introduced legislation that, if enacted, may make a partial dent in the U.S. housing reform effort. The “Jumpstart GSE Reform Act” (the “Legislation”), introduced on March 14 in the Senate Committee on Banking, Housing and Urban Affairs (the “Senate Banking Committee”), would prevent any increase in guarantee fees (“g-fees”) imposed by Fannie Mae and Freddie Mac (the “GSEs”) from offsetting other government spending. The Legislation would also prohibit the sale of GSE preferred stock by the United States Treasury (the “Treasury”) without Congressional approval and structural housing finance reform. Furthermore, on March 22, Senator Tim Johnson (D-SD), chairman of the Senate Banking Committee, offered a bipartisan amendment (the “Amendment”) to the Senate budget that would prohibit Congress from using g-fee increases to offset additional government spending. The Amendment was agreed to in the Senate by unanimous consent. Although this budget will not become law, the Amendment shows growing support for this issue. Read More

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