Consumer Financial Services Alert - February 21, 2012

U.S. Attorney General Eric Holder, HUD Secretary Shaun Donovan, Iowa Attorney General Tom Miller, Colorado Attorney General John W. Suthers and other federal and state officials jointly announced that the federal government, 49 state attorneys general and the five largest servicers have reached a $25 billion settlement agreement over certain mortgage loan servicing and foreclosure issues. Oklahoma Attorney General E. Scott Pruitt announced a separate settlement between Oklahoma and the five servicers.

The settlement calls for the servicers’ commitment of $20 billion in financial relief for homeowners and a $5 billion payment to state and federal governments that includes $1.5 billion to establish a Borrower Payment Fund, which will provide payments to qualifying borrowers whose homes were sold or foreclosed on between January 1, 2008 and December 31, 2011. The settlement agreement includes more than $766.5 million in monetary sanctions assessed by the FRB, and $394 million in penalties levied by the OCC, which will be held in abeyance provided four of the servicers make payments and take other actions.

In addition to the financial terms of the settlement, the servicers have agreed to adhere to new servicing standards, which include (1) restrictions on "dual tracking," (2) single point of contact requirements, (3) protections service members beyond those provided by the Servicemembers Civil Relief Act, (4) disclosures and limitations related to force-placed insurance, and (5) limitations on servicing fees. The servicers must also update their foreclosure and bankruptcy documentation processes, enhance oversight of third party vendors, and follow new loan modification timelines. The parties have established a website that provides highlights of the settlement and the new servicing standards. Click here for the settlement website.

The Consumer Financial Protection Bureau proposed a new regulation to define "larger participants." Under Section 1024 of the Dodd-Frank Act, the CFPB has the authority to supervise nonbank "larger participant[s] in markets for other consumer financial products or services.” The proposed rule covers two markets for consumer financial products and services: consumer debt collection and consumer reporting. The proposal establishes a test for each market to determine whether a nonbank entity is a "larger participant" of either the consumer debt collection or consumer reporting markets. The proposal measures "annual receipts," as defined by the Small Business Administration, to determine whether covered persons qualify as "larger participants" and are subject to the CFPB's authority under Section 1024. The thresholds for the consumer debt collection and reporting markets are $10 million and $7 million, respectively. Click here for the proposed rule.

The House Financial Services Committee passed a bill that would prevent waiver of attorney-client privilege for information supervised institutions provide to the Consumer Financial Protection Bureau. Previously, the CFPB's General Counsel issued a bulletin titled "The Bureau's Supervision Authority and Treatment of Confidential Supervisory Information" in response to concerns from supervised institutions over the protection of privileged data provided to the CFPB. The bill passed by the House Financial Services Committee provides a legislative fix to the potential gap created by the Dodd-Frank Act which did not explicitly bar the CFPB from turning over privileged information or explicitly list the CFPB as a "prudential regulator" in which attorney-client privilege would not be waived. Click here for the CFPB bulletin on privileged information. Click here for the bill passed by the House Financial Services Committee.

The CFPB launched its Regulation Streamlining Feedback Web Tool, which allows the public to provide input on ways to streamline the regulations the CFPB inherited under the Dodd-Frank Act. In December 2011, the CFPB issued a request for public comment on streamlining inherited regulations. Click here for a link to the Web Tool and here for a link to the request for public comment.

The CFPB will hold a town hall meeting on checking account products and services on February 22, 2012 in New York City. The CFPB hopes to hear from consumers about their experiences with checking account products and services. CFPB Director, Richard Cordray, and Deputy Director, Raj Date, will be in attendance. Click here for a link to information about the town hall meeting.

The CFPB is asking for comments on a monthly mortgage statement prototype. The prototype provides a breakdown of the mortgage payment including how much is allocated to loan principal, interest, and fees. The prototype also contains information about the principal loan amount, the current interest rate, the date on which the interest rate may next reset, a description of any late payment and penalty fees, information about housing counselors, and a telephone number and email address that may be used to contact the mortgage servicer. Click here for the prototype.

The FTC issued its annual report to the FRB on enforcement of various regulations including, Regulation B (Equal Credit Opportunity Act), Regulation E (Electronic Fund Transfer Act), Regulation M (Consumer Leasing Act), and Regulation Z (Truth in Lending Act). The FTC's annual report includes information on the various enforcement actions taken in 2011. Click here for the annual report.

The FTC recently issued a report, Mobile Apps for Kids: Current Privacy Disclosures Are Disappointing, that found that parents are not being provided with sufficient information about what types of data mobile applications collect prior to purchasing the application. The report noted that because mobile applications can collect a wide swath of information, ranging from contact lists to precise locations, a greater transparency about the industry's data practices is needed. The report provided a number of recommendations, including that application developers and third parties that collect data provide parents with short and simple disclosures. Mobile application disclosures are on the agenda for the FTC's public workshop in 2012 regarding its Dot Com Disclosure Guide and online disclosures. Click here for the FTC release, and here for a copy of the report.

The CFPB adopted a final rule amending the official commentary that interprets the requirements of Regulation C (Home Mortgage Disclosure Act). The Act requires that most mortgage lenders in metropolitan areas collect data about their housing-related lending activity. The final rule changes the asset-size exemption threshold for depository institutions increasing it to $41 million from $40 million. Click here for the final rule.

The Multi-State Mortgage Committee has released SAFE Act Examination Guidelines which seek to encompass state law requirements regarding the licensing of mortgage institutions, rather than just individuals, through the Nationwide Mortgage Licensing System and Registry.  The purpose of the guidelines is to provide a "standardized set of examination procedure," but use of the guidelines is not mandatory. Rather, state mortgage regulators have discretion as to whether to use some, all or none of the guidelines. Click here for the guidelines.

FinCEN published an advisory regarding financial institutions' obligations under the Bank Secrecy Act, as they relate to foreign-located money services businesses. Pursuant to the Advisory, financial institutions are under a continuing obligation to file suspicious activity reports if they suspect funds are related to laundering, terrorism, or any other illegal activity, and may need to update their anti-money laundering policies and procedures.

The advisory also provided financial institutions with guidance on what constitutes a money services business, noting relevant factors, such as whether the foreign-located person is providing services to customers residing in the United States; clarified that foreign-located money service businesses are considered financial institutions under the Act, and, therefore, are subject to the same penalties for violation of the Act and its implementing regulations, as well as the Act's requirements on record-keeping, reporting and AML programs. Foreign-located money services businesses, however, will not be required to comply with the agent appointment and registration requirement until the revised registration is made available, currently scheduled for release in March. Click here for the advisory.

In a case of first impression, the United States Court of Appeals for the Ninth Circuit recently affirmed a lower court decision dismissing a Truth in Lending Act rescission claim as untimely, although the notice of rescission was timely provided and the parties had agreed to waive the three-year statute of limitations. Plaintiff alleged that she was never given proper notice of her right to rescind her loan and, approximately two years after the loan closed, notified Bank of America of her intent to rescind the loan. Although Bank of America denied that its disclosures were inappropriate and refused to rescind the loan, plaintiff's complaint alleged that she and Bank of America were involved in lengthy negotiations regarding the rescission, which included an agreement to waive TILA's three-year statute of limitations. Relying on a 1998 decision by the Supreme Court, Beach v. Ocwen Fed. Bank, 523, U.S. 410, and an earlier Ninth Circuit opinion, Miguel v. Country Funding Corp., 309 F.3d 1161 (2002), the court held that TILA's three-year limitations period is actually a statute of repose, that extinguishes any claim not instituted within the three-year period. Accordingly, although plaintiff timely filed her notice of rescission, and reached a tolling agreement with Bank of America, her failure to timely file her rescission suit resulted in her claims being forever extinguished. Click here for a copy of McOmie-Gray v. Bank of America Home Loans (formerly Countrywide Home Loans, Inc.), No. 00-16487 (9th Cir. Feb. 8, 2012).