Bob Jaworski to Speak at BankHorizons Conference

On December 2nd, please join Robert Jaworski, a partner in Reed Smith’s Financial Services Regulatory Group who will be speaking at the BankHorizons 2016 conference. Bob’s presentation will discuss:

For banks that rely heavily on consumer business, compliance with the ever-increasing volume of regulations coming out of Washington over the last several years has imposed a major burden. That burden has yet to show signs of diminishing, particularly with multiple regulatory initiatives being unveiled by the Consumer Financial Protection Bureau during the past year. This session will provide attendees with highlights of some of the most significant of these CFPB initiatives, including the CFPB’s new mortgage servicing rules, the recently proposed changes to the CFPB’s KBYO/TRID rule, the new HMDA rule, and more. In addition, we will also address the PHH v. CFPB decision recently issued by the D.C. Circuit Court of Appeals – what the court decided, what will happen next, and the implications of this decision for the future.

For more information on the conference, please click here.

Mortgage Lenders Receive Wake Up Call from CFPB

Last week, the CFPB issued a warning letter to 44 mortgage lenders and brokers concerning possible violations related to their collection and reporting of mortgage data under the Home Mortgage Disclosure Act (HMDA) and Regulation C. HMDA requires mortgage lenders to collect and report data related to certain housing-related loans, in part to ensure those lenders do not engage in discriminatory practices.  While the letter states that the CFPB has not made any finding of specific HMDA violations, it encourages institutions to undertake a review to ensure compliance with HMDA requirements and report any such efforts to the CFPB.

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State AGs Double Down Focus on Financial Services, including FinTech

State attorneys General (AGs) continue to emerge as major regulators of financial services and show little sign of being cowed by their federal counterparts….or efforts to preempt state authority.

This past week, representatives of the consumer protection divisions of the AGs of nearly all 50 states plus officials from the FTC and CFPB met in Phoenix to compare notes and coordinate activity on a range of issues impacting consumers. Among the issues addressed, none was more prominent that those involving consumer financial services.  Key panels at the meeting addressed state involvement in FinTech, Payday Lending and Structured Settlements.

Read more.

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Travis P. Nelson is counsel in the Financial Services Regulatory Group at Reed Smith LLP, resident in the Princeton and New York offices. Prior to joining Reed Smith, Travis was an Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department, in Washington, D.C. Travis is also adjunct faculty at Villanova University School of Law, and a frequent lecturer at national and regional banking conferences.

Maria Earley, Experienced CFPB Lawyer Joins Reed Smith in D.C.

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On October 3rd, Maria Earley, a former enforcement attorney at the Consumer Financial Protection Bureau (CFPB), joined Reed Smith as a partner in the firm’s global Financial Industry Group (FIG) in Washington, D.C.

“Reed Smith is proud to have earned the trust of some of the top banking and financial institutions in the world,” said FIG leader Ed Estrada. “Maria’s experience and reputation as a leading CFPB practitioner will further strengthen our ability to represent consumer financial services clients across regulatory, compliance, transactional and litigation matters.

Earley’s practice focuses on CFPB and other agency enforcement investigations, as well as advising financial services companies in examination, litigation and transactional matters. Prior to joining the CFPB, Earley concentrated on the defense of financial institutions in complex civil litigation matters. With more than a decade of experience in the financial services space, Earley has wide-ranging knowledge of federal and state consumer financial laws, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Debt Collections Practices Act and the Fair Credit Reporting Act.

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Travis P. Nelson is counsel in the Financial Services Regulatory Group at Reed Smith LLP, resident in the Princeton and New York offices. Prior to joining Reed Smith, Travis was an Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department, in Washington, D.C. Travis is also adjunct faculty at Villanova University School of Law, and a frequent lecturer at national and regional banking conferences.

CFPB Takes Enforcement Action Against FinTech Lender

On September 27, 2016, the Consumer Financial Protection Bureau (CFPB) entered into a Consent Order (the “Order”) with Flurish, Inc d/b/a LendUp (LendUp), a startup online lending company based in San Francisco that offers single-payment loans and installment loans in 24 states. The Order sends a powerful message to online lenders to make sure their legal houses are in order before opening their doors to customers.

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CFPB Finally Adopts Amendments To Its Mortgage Servicing Rules

On August 4, the Bureau of Consumer Financial Protection (“CFPB”) finally adopted amendments (the “Amendments”) to its 2013 mortgage servicing rules (the “Servicing Rules”). The Servicing Rules implemented provisions in the Dodd-Frank Act to regulate in great detail the residential mortgage servicing business.  The Amendments have been under consideration by the CFPB for more than 20 months and represent the CFPB’s response to numerous issues and concerns raised by industry and consumer groups alike about the Servicing Rules.  The Amendments (which take up more than 900 pages) are significant. They cover the following nine major topics (as well as a few minor ones):

  1. Successors in interest. How to define them, what procedures must be followed to “confirm” them, and how the Servicing Rules will apply to them once they are so confirmed? In adopting these provisions, the CFPB was responding to reports by housing counselors and consumer advocacy groups about a variety of challenges that successors in interest face, including difficulties in establishing their successor status, obtaining information about the status of mortgage loans on their homes or the monthly payment amount, getting servicers to accept their payments, and finding out their options to avoid foreclosure.
  2. Delinquency. When does it begin, and when does it end? This is important for various timing requirements in the Servicing Rules.
  3. Requests for information. How to accurately respond to consumer requests for ownership information about loans in trust where Fannie or Freddie owns the loan or is the trustee of the securitization trust in which it is held?
  4. Force-placed insurance. How do the rules apply in cases where the borrower has insurance but in an insufficient amount? How should the model notices be modified to deal with this? Can loan numbers be included on these notices?
  5. Early intervention. How often must servicers attempt to make live contact and/or send early intervention notices to borrowers whose delinquency lasts several months? How is this affected by a servicing transfer? What about borrowers in bankruptcy or who have invoked their cease communication rights under the FDCPA?
  6. Loss mitigation. Whether and under what circumstances servicers must allow borrowers whose applications were rejected to reapply? May servicers join foreclosure actions instituted by a subordinate lienholder before the borrower is at least 120 days delinquent? How much time should borrowers be given to complete an application?  What actions must servicers take or not take if they receive a complete application after having made the first foreclosure notice or filing? Whether and how servicers must notify borrowers that their applications are complete?  What are servicers’ responsibilities concerning incomplete applications that lack only information in the possession of third parties?  May servicers offer short-term repayment plans based upon an evaluation of an incomplete application?  May servicers stop collecting information from borrowers for a particular loss mitigation option (a) upon learning that the borrower is ineligible for that option, (b) based solely upon the borrower’s stated preference for a different option, or (c) based on the borrower’s stated preference in conjunction with other information?  How do loss mitigation procedures and timelines apply to transferee servicers when there is a pending application at time of transfer?
  7. Prompt payment crediting. How servicers must treat payments made by consumers who are performing under either temporary loss mitigation programs or permanent loan modifications?
  8. Periodic statements. How should servicers disclose the payment amount that is due for loans that have been accelerated, are in temporary loss mitigation programs, or have been permanently modified? Must servicers continue to send periodic statements to consumers who have filed for bankruptcy or consumers whose loans have been charged-off and, if so, with what modifications?
  9. Small servicer. What loans will not count toward the 5,000 limit to qualify as a small servicer?

With certain exceptions, the Amendments will become effective 12 months following their publication in the Federal Register, which may not occur until September. The exceptions are the Amendments that relate to successors in interest and consumers in bankruptcy and the Amendments that address when servicers may stop collecting information from borrowers for a particular loss mitigation option.  These Amendments will not become effective until 18 months after publication in the Federal Register.

We are in the process of developing a webinar to explain the Amendments in more detail and expect shortly to announce in our Financial Services blog the date when this webinar will be presented. Stay tuned.

 

CFPB Moves Forward With Proposal To Ban Class Action Waivers In Arbitration

The Consumer Financial Protection Bureau has published its long anticipated 377-page proposed rule to bar banks and regulated financial institutions from including class action waivers in mandatory arbitration provisions in consumer contracts.

Mandatory arbitration clauses, and class action waivers, are pervasive in financial contracts. According to a study by the CFPB in 2015 arbitration clauses are used by 53% of credit card contracts, 44% of checking account agreements, 92% of prepaid card agreements, and 84% of storefront payday loan agreements.

The proposed rule would prohibit covered institutions from “using a pre-dispute arbitration agreement to block consumer class actions in court and would require providers to insert language into their arbitration agreements reflecting this limitation.” The rule would apply to a range of financial products, including credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto and title loans, payday and installment loans, and student loans. Under the proposal, institutions would also be required to submit records of arbitral proceedings to the CFPB. According to the Bureau, it “intends to use the information it collects to continue monitoring arbitral proceedings to determine whether there are developments that raise consumer protection concerns that may warrant further Bureau action.”

The proposed rule does not go so far as to outright ban mandatory arbitration clauses in full. But if implemented, the rule would likely have the practical effect of ending most consumer arbitrations because financial institutions will be reluctant to incur costs defending class actions while paying for arbitration.

The proposed rule will be open to public comment for ninety days, and a final rule is anticipated possibly by mid-2017. The CFPB has stated that the rule would have an effective date 30 days after publication of the final rule.

The CFPB’s proposal is consistent with regulators general pushback against arbitration. The CFPB already prohibits mandatory arbitration of disputes related to most mortgage loans and home equity agreements. Mandatory arbitration provisions are also barred from payday loans, vehicle-title loans and similar transactions involving members of the military. In the brokerage industry, the Financial Industry Regulatory Authority bars firms from prohibiting participation in class actions. The Labor Department’s newly published fiduciary-duty rule for financial advisers will permit only arbitration clauses that do not include a class waiver. The Department of Education and The Centers for Medicare and Medicaid Services are likewise considering restrictions on arbitration.

Federal Regulator Issues Proposed Rule Aimed at Incentive Compensation Policies of Banking Organizations

On April 21, 2016, the National Credit Union Administration (collectively, with the Office of the Comptroller of the Currency, Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, and U.S. Securities and Exchange Commission, the “Regulators”), issued a proposed rule (the “Proposed Rule”) designed to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations under Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Read more about the impact of the proposed rule.

Recent changes to the German regulatory situation for debt funds

Pursuant to recent legislative changes, certain investment funds are now entitled under certain conditions to originate or restructure loans in Germany without the need to obtain a banking licence for lending. Due to the legislative changes, it is now easier to originate or restructure third party loans for certain types of German alternative investment funds (AIFs), and various types of German funds now have broad possibilities to grant shareholder loans or to acquire loans. For EU AIFs, it is now generally easier to originate or restructure loans in Germany. Even foreign (i.e. non-EU) funds may now grant or restructure loans in Germany, but subject to much stricter requirements than those for EU AIFs. This Reed Smith alert sets out an overview of the changes and the updated situation.

To read the entire Reed Smith Client Alert, please click here.

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