Consumer Finance Newsletter - October 2012

October 1, 2012


The CFPB’s Examination Procedures for the Credit Reporting Industry

Issue: In advance of the September 30, 2012 effective date of the final regulation of the Consumer Financial Protection Bureau (CFPB) subjecting entities in the industry to its examination powers, the CFPB released the procedures by which its employees will conduct examinations of credit reporting businesses. Firms can be subject to such examinations if they (a) collect, analyze, maintain or provide information used to decide whether to offer or provide any consumer financial product or service, and (b) have more than $7 million in annual receipts from such activities. Such firms can include credit bureaus that collect information and firms that store, analyze and/or resell the collected information.

Why You Should Care: The precise nature of the CFPB’s examination manual may leave limited discretion on the part of individual examiners. A positive corollary of that detail is that firms in the consumer reporting industry have helpful notice of how they can ensure a smooth examination.

The examination procedures explicitly expand the scope of the exam beyond FCRA compliance, noting that examiners are to assess compliance with other consumer finance laws as well — such as the prohibition against unfair, deceptive or abusive acts or practices (UDAAP). Entities subject to a CFPB examination as a result of their credit reporting activities may wish to prepare for the possibility that their entire organization will be scrutinized.

If You Want Further Information: The credit bureau examination procedures can be found here.

If You Want Further Analysis: Contact Brian D. Boyle bboyle@omm.com.

FHFA Increases Mortgage Guarantee Fees in Five States

On September 25, 2012, the Federal Housing Finance Agency (“FHFA”) published a notice in the Federal Register, identifying five states -- Connecticut, Florida, Illinois, New Jersey, and New York -- in which Fannie Mae and Freddie Mac intend to charge increased guarantee fees at the time of mortgage origination. FHFA stated that foreclosure costs and delays in the five states are statistically higher than the national average and therefore impose higher costs on Fannie Mae and Freddie Mac. The increased guarantee fee would take the form of an upfront fee, in an amount between 15 to 30 basis points depending on the jurisdiction, which lenders could pass through to a borrower as an adjustment to the interest rate on the borrower’s loan.

The deadline for comment is November 26, 2012. FHFA expects to direct Fannie Mae and Freddie Mac to implement the pricing adjustments in 2013.

Why You Should Care:
Organizations that provide mortgage lending services in the five states may begin incurring increased guarantee fees in 2013.

If You Want Further Information: The September 25 notice is found here. A September 20 FHFA press release is found here.

If You Want Further Analysis: Contact Brian D. Boyle bboyle@omm.com.

Governor Brown Signs Remaining Provisions of California Homeowners’ Bill of Rights


Issue: Governor Brown signed into law four bills enacting additional provisions of the Homeowners’ Bill of Rights package. The provisions are in addition to the other provisions of the Homeowners’ Bill of Rights which were enacted in July.

A.B. 2610 requires that after the notice of sale is posted on the property, any tenants must be advised that if they are renting the property, the new property owner may either give the tenant a new lease or rental agreement, or provide the tenant with a 90-day eviction notice. The notice must also advise the tenant that “If you have a fixed-term lease, the new owner must honor the lease unless the new owner will occupy the property as a primary residence or in other limited circumstances.” The “limited circumstances” include, inter alia, cases in which the lease was not the result of an arms-length transaction. A.B. 2610 becomes operative on the later of March 1, 2013, or 60 days following posting of a dated notice incorporating the bill’s amendments on the Department of Consumer Affairs website.

A.B. 2314 repealed the sunset provision applicable to California Civil Code § 2929.3, which requires a legal owner to maintain vacant residential property purchased at a foreclosure sale or acquired through foreclosure under a mortgage or deed of trust and provides for fines of up to $1,000 per day for a violation. The law was formerly set to expire on January 1, 2013.

S.B. 1474 authorizes the Attorney General to convene a special statewide grand jury for cases involving fraud or theft that occur in more than one county with or without the concurrence of the district attorneys. It is thought that this will allow the Attorney General to more efficiently and effectively investigate multi-jurisdictional financial crime.

A.B. 1950 imposes state licensing requirements on mortgage loan originators and extends the statute of limitations for certain mortgage-related offenses to three years. A.B. 1950 also repealed the sunset provisions applicable to California Business and Professions Code §§ 10130 & 10085.6, which prohibit persons assisting borrowers in obtaining a loan modification from demanding or receiving pre-performance compensation or requiring security as collateral or taking a power of attorney from the borrower. Sections 10130 and 10085.6 were previously scheduled to expire on January 1, 2013.

Why You Should Care: A.B. 2610 and A.B. 2314 have the potential to increase the costs associated with holding certain REO properties in California. SB 1474 and AB 1950 could signal California’s willingness to increase enforcement of mortgage-related offenses.

If You Want Further Information: Our client alert regarding the Homeowners’ Bill of Rights provisions enacted in July is available here. The text of AB 2610 is available here. The text of AB 2314 is available here. The text of SB 1474 is available here. The text of AB 1950 is available here.

If You Want Further Analysis: Contact Elizabeth L. McKeen, emckeen@omm.com.

The CFPB Lists Safe Harbor Countries for its Rule on Remittances

Issue: Pursuant to Section1073 of the Dodd-Frank Act, on February 7, 2012 the Consumer Financial Protection Bureau (CFPB) published a final rule applicable when consumers send money overseas. Providers subject to the CFPB’s remittance rule include financial institutions and other non-depository companies that facilitate money transfers. The rule requires the disclosure of fees, provides consumers a limited right of cancellation, and mandates error resolution procedures. On August 20, the CFPB amended the rule to, inter alia, exempt providers who generally make 100 or fewer remittances per year, and to allow the use of estimated fees when the remittance is arranged five or more business days in advance.

On September 26, the CFPB released additional guidance by specifying a list of countries whose laws prevent providers from determining “the exact exchange rate[.]” For these countries, estimated (as opposed to exact) fee disclosures will be allowed per 12 CFR §1005.32(b)(1)(i).

Why You Should Care: Entities that provide remittance services will need to comply with the final rule by February 7, 2013. The CFPB noted that the list of countries exempted from the disclosure requirements can change, and the CFPB has asked providers to submit comments on an ongoing basis.

If You Want Further Information: The February 7, 2012 final rule is found here. The August 20, 2012 amendment to the final rule is found here. The September 26, 2012 guidance can be found here.

If You Want Further Analysis: Contact Brian D. Boyle, bboyle@omm.com.

Nationwide Class Decertified in Option One Fair-Lending Class Action

Issue: On September 18, the United States District Court for the District of Massachusetts entered an order decertifying a nationwide class comprising all African American borrowers who had, over a many-year period, obtained a mortgage loan from Option One Mortgage Corporation, n/k/a Sand Canyon Corporation, or H&R Block Mortgage Corporation, n/k/a Ada Services Corporation. In Barrett v. Option One Mortgage Corporation, et al., No. 08-10157-RWZ (D. Mass.), plaintiffs allege that African American mortgage borrowers paid more, on average, for their loans than did white borrowers in violation of the Equal Credit Opportunity Act and the Fair Housing Act. Plaintiffs allege that the disparate pricing resulted from defendants’ delegation of discretion regarding loan pricing to tens of thousands of independent mortgage brokers.

The court had previously certified a class on March 21, 2011, based on statistical regressions purportedly showing a nationwide disparate impact, on African American borrowers, of defendants’ alleged policy of delegating loan-pricing discretion. Three months later, the Supreme Court ruled in Wal-Mart v. Dukes, __ U.S. __, 131 S. Ct. 2541 (2011), that the mere delegation of decision-making authority is not a uniform policy sufficient to establish commonality under Federal Rule of Civil Procedure 23(a) and that statistical regressions aggregated at the national (or even regional) level could not be the “glue” to hold together otherwise unrelated discretionary decisions in a class action because “[i]nformation about disparities at the regional and national level does not establish the existence of disparities at individual stores, let alone raise the inference that a company-wide policy of discrimination is implemented by discretionary decisions at the store and district level.’” Wal-Mart, 131 S. Ct. at 2555.

O’Melveny represents defendants in the case and obtained the decertification ruling.

Why You Should Care: Barrett is the most recent of several fair-lending class actions against mortgage originators in which the court ruled that class certification is inappropriate under Wal-Mart. Other such cases include In re Countrywide Financial Mortgage Lending Practices Litig., No. 08–MD–1974, 2011 WL 4862174 (W.D. Ky. Oct. 13, 2011); Rodriguez v. Nat’l City Bank, No. 08-2059, 2011 WL 04018028 (E.D. Pa. Sept. 8, 2011); In re Wells Fargo Residential Mortgage Lending Discrimination Litig., No. 08-MD-01930, 2011 WL 3903117 (N.D. Cal. Sept. 6, 2011). The courts in all three cases denied certification under Wal-Mart. An interlocutory appeal is currently pending in Rodriguez.

If You Want Further Information: The order decertifiying the class in Barrett can be found here.

If You Want Further Analysis: Contact Brian D. Boyle, bboyle@omm.com, Randall W. Edwards, redwards@omm.com, or Elizabeth McKeen, emckeen@omm.com.

The CFPB Issues Ruling on Request to Modify Civil Investigative Demand

Issue: As described in our prior alert on Consumer Financial Protection Bureau (CFPB) investigations, a party who receives a Civil Investigative Demand (CID) from the CFPB has 20 calendar days to request modification. Such requests are vital because a failure to petition the CFPB to modify the CID may waive the right to object when the CFPB seeks judicial enforcement of the CID.

On September 20th, the CFPB issued its first Decision and Order denying a request to modify the scope of a CID it issued and demanding compliance within 21 days.

Why You Should Care: The CFPB has made public its first Decision and Order denying a request for a CID modification, which will be valuable to other institutions subject to the CFPB’s oversight or who receive a CID from the CFPB. The CFPB appears to be framing anticipated discussions or negotiations over the scope of future CIDs, noting in its Order that it was providing a “more extensive” discussion “[b]ecause of the precedential value of this determination for future such matters[.]” For example, in response to the claim that the CID was “overbroad or unduly burdensome,” the CFPB cites to case law involving CIDs from other federal regulators before concluding that the petitioner did not provide the “detail to make the kind of showing required to substantiate [its] claims.” Institutions should carefully study the CFPB Order before responding to, or requesting modification of, a CFPB-issued CID.

Providers should also keep in mind that, although CFPB investigations are not public, petitions requesting CID modifications and the CFPB's orders on such requests constitute public records of the CFPB, unless the petitioner provides good cause for keeping the CID modification request and resulting order private at or before filing the petition requesting modification. 12 CFR §1080.14. 12 CFR §1080.6(g).

If You Want Further Information: The petition to modify the CFPB’s CID is found here. The CFPB’s September 20 order denying the petition is found here.

If You Want Further Analysis: Contact Brian D. Boyle bboyle@omm.com, or Randall W. Edwards, redwards@omm.com.