Posts filed under ‘CFPB’

CFPB Issues Consent Order for RESPA Violations

Written by:  Robert Harry

On January 31, 2017, the Consumer Financial Protection Bureau (“CFPB”) published a Consent Order with Prospect Mortgage, LLC (“Prospect”) for alleged violations of the Real Estate Settlement Procedures Act (“RESPA”) prohibitions against kickbacks and unearned fees, commonly referred to as “RESPA Section 8”. RESPA Section 8 states that “no person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person”. RESPA Section 8 applies to, among others, mortgage lenders, title companies, lawyers, servicers, and real estate agents.

The CFPB alleges that Prospect entered into a series of agreements with two real estate brokerage agencies and a loan servicer for mortgage origination referrals. The CFPB noted that Prospect violated RESPA Section 8 by:

1. Using lead agreements to pay brokers for referrals;
2. Using Marketing Services Agreements, commonly referred to as “MSAs” to pay brokers for referrals;
3. Using desk licensing agreements to pay brokers for referrals;
4. Encouraging brokers and agents to require consumers to loan obtain pre-approvals with Prospect’s loan officers
5. Paying the servicer for referrals;
6. Using a third-party’s website advertising to pay real estate brokers for referrals; and
7. Encouraging brokers to use fees and credits to pressure consumers into using Prospect.

The CFPB ordered Prospect to pay a $3.5 million dollar civil money penalty to the bureau. Further, Prospect may still have liability for any private civil action available under RESPA Section 8 to any consumer harmed by these actions, is prohibited from engaging in the activities described in the Consent Order, and must undergo compliance training, and conduct extensive reporting and recordkeeping.

Additionally, and in a departure from the CFPB’s prior RESPA Section 8 enforcement actions, the CFPB also entered into Consent Orders with the two real estate brokerages for accepting the payments in violation of the law. This is the first time the CFPB has enforced RESPA Section 8’s prohibition against kickbacks against real estate brokers under the common use of MSAs, desk licensing, and co-marketing agreements. The two brokerages agreed to pay a combined $230,000.00 in fines and disgorgement due to the alleged violations and may still be held liable under related consumer private causes of action.

The actions by the CFPB reinforce Richard Cordray’s position that the bureau will analyze marketing arrangements between settlement service providers with great scrutiny. The orders rely on internal communications and statements to demonstrate that the facially lawful arrangements under RESPA Section 8 were likely only a means of circumventing the anti-kickback provisions while still paying for referrals. It’s imperative that all settlement service providers carefully evaluate any marketing or business activities with other settlement service providers to ensure compliance with RESPA.

The attorneys at Stinson Leonard Street are uniquely able to counsel and assist clients in the residential real estate finance and sales industry to navigate the complex regulation that is RESPA Section 8.

February 16, 2017 at 10:35 am

CFPB Too Powerful: Federal Court Finds the Agency’s Structure is Unconstitutional

Written by: Lindsay Harden

Ever since the establishment of the Consumer Financial Protection Bureau (CFPB) in 2011, it has become what some argue is the most powerful federal agency in history. The Dodd-Frank Act not only established the CFPB, but transferred to it rulemaking authority previously held by seven different federal agencies, resulting in a significant concentration of power and giving the agency authority over nearly every type of financial product and service in the financial marketplace. Yesterday, that power was curtailed – to some extent – by the federal Court of Appeals for the D.C. Circuit.

In its opinion, the Court of Appeals noted that the Director of the CFPB, Richard Cordray, possesses more unilateral authority than any single commissioner or board member in any other independent agency in the U.S. government. The director alone decides what rules to issue, how to enforce those rules, when to enforce, against whom to enforce, and what sanctions and penalties to impose. Additionally, Dodd-Frank provided that the director can be removed only “for cause.” As a result, the director has an enormous amount of influence over American business, American consumers, and the overall U.S. economy, yet is accountable to no one – neither Congress nor the president.

The challenge the court considered was brought by PHH Corporation, a mortgage lender that argued the single-director model was unconstitutional and sought a shut-down of the entire agency. The court opted, however, for a more narrow approach, striking the phrase “for cause” from the Dodd-Frank provision concerning the grounds for removal of the agency’s director. Thus, the director can now be removed by the president at will; a solution, the court reasoned, that will provide the critical check on the agency which was previously lacking.

The court also made another important finding in its decision, related to whether CFPB administrative actions are limited by statutes of limitations. The agency has repeatedly argued in the past that its administrative enforcement actions are not subject to statutes of limitations, meaning that it could theoretically bring an administrative action based on conduct occurring at any time in the past. However, the court rejected this argument and held that CFPB enforcement actions, whether brought as administrative actions or in court, are subject to the applicable statutes of limitations found within the underlying consumer protection laws the agency enforces.

It is unclear whether this decision will prompt other, more material changes in the agency’s structural organization and regulatory approach. Although the director may now be removed at will, he still holds all the same rulemaking and enforcement power as before. For example, the CFPB administrative appeals process is still heavily weighted in the agency’s favor, as each action brought by the director initially must then be appealed to him before becoming eligible for judicial review.

Though the agency will not be going away in the near future, this change does provide some ability to manage the director’s extraordinary power, at least in the short term. An appeal to either the full D.C. Court of Appeals or to the U.S. Supreme Court is expected, which could (if the case is reversed) return the CFPB back to its status quo, with virtually unlimited power and influence.

For additional information on this case, please see our Dodd-Frank.com blog post.

November 4, 2016 at 8:00 am

CFPB Reissues Guidance on Supervised Bank and Non-Bank Relationship with Third-Party Service Providers

Written by:  George Sand

On October 31, 2016, the Bureau of Consumer Financial Protection (“CFPB”) reissued Bulletin 2012-03 (Service Providers) to clarify certain aspects of the risk management program for service providers. The intention behind the release is to clarify that appropriate risk management can be accomplished through giving flexibility to supervised entities.

The CFPB expects supervised banks and non-banks to properly provide oversight to their respective service providers to ensure compliance with Federal consumer financial law and to prevent consumer harm. Section 1002(26) of the Dodd-Frank Act (12 U.S.C. 5481(14)) defines a service provider as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” The fact that a supervised bank or non-bank enters into a relationship with a service provider does not mean such bank or non-bank is absolved from liability for the service provider’s product. The supervised bank or non-bank may be liable for its service provider’s unfair, deceptive, or abusive acts or practices towards consumers. Circumstances triggering supervised bank or non-bank liability include a service provider’s unfamiliarity with legal requirements applicable to the product provided, inadequate efforts to implement such requirements carefully and effectively, and insufficient internal controls, among others. Title X authorizes CFPB to exercise enforcement authority over supervised service providers, which includes the ability of CFPB to examine supervised service provider operations on site.

Under the reissued bulletin, the CFPB clarifies that a supervised bank or non-bank risk management program may vary depending on the service being performed. Factors taken into consideration include the service’s size, scope, complexity, importance and potential for customer harm. The CFPB provides that supervised banks and non-banks should take the following steps with service providers:

  • Conduct a thorough due diligence to ensure service provider has the requisite knowledge and capacity to comply with Federal consumer financial law;
  • Review the service provider’s policies, procedures, internal controls, and training materials to ensure they provide for appropriate operations and oversight;
  • Draft contractual provisions with the service provider that provide “clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices”;
  • Establish internal controls and monitoring procedures for surveillance of the service provider to ensure service provider is abiding by Federal consumer financial law; and
  • “Promptly” react to identified problems, including terminating the relationship when necessary.

November 3, 2016 at 8:00 am

Does the Consumer Financial Protection Bureau Have Authority Over Your Business? Follow Along

The Consumer Financial Protection Bureau (CFPB) was created to enforce various consumer finance laws like the Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, Home Mortgage Disclosure Act of 1975, and Truth in Lending Act. The CFPB has broad authority and it is getting broader. The bureau says it can regulate any “covered person” that offers or provides a consumer financial product or service. The CFPB Authority Flow Chart, created by Zane Gilmer, will help you determine whether you or your business is a “covered person” and can be regulated by the CFPB, and what the CFPB statutes actually have govern.

September 23, 2015 at 10:18 am

CFPB Plans Delay of Know Before You Owe Rule

Written by: David Kantor

Residential mortgage originators struggling to meet the August 1, 2015 implementation date for the new Truth-in-Lending RESPA Integrated Disclosure Rule received a reprieve yesterday.

CFPB Director Richard Cordray issued the following statement on the Know Before You Owe mortgage disclosure rule:

The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015. We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.

The public will have an opportunity to comment on this proposal and a final decision is expected shortly thereafter.

***UPDATE***

On June 24 the CFPB published its proposed rule for extending the effective date for implementation of the Know Before You Owe Rule to October 3, 2015.  The public has until July 7 to submit comments.

See full release here.

June 18, 2015 at 1:42 pm Leave a comment

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