Consumer Financial Services Alert - January 7, 2014 January 07, 2014
In This Issue

CFPB and DOJ Take Enforcement Action Against Bank Alleging Violations of ECOA

The CFPB and DOJ announced that the filing of a joint complaint in the United States District Court for the Western District of Pennsylvania against a bank as successor in interest to a mortgage lender for violations of the Equal Credit Opportunity Act. ECOA and its implementing regulation, Regulation B, generally prohibits creditors from discriminating against loan applicants on the basis of characteristics such as race and national origin. According to the complaint, the mortgage lender allegedly charged higher prices on mortgage loans to African American and Hispanic borrowers than similarly creditworthy white borrowers between 2002 and 2008. The agencies further alleged that between 2002 and 2008, the mortgage lender gave its loan officers and brokers wide discretion to set borrowers’ rates and fees, and compensated these officers and brokers from the higher prices paid by consumers. There was no objective criteria, guidelines, instructions or procedures in place, according to the agencies. The agencies’ enforcement action is based on statistical analyses demonstrating that the practice had a discriminatory effect on over 76,000 African-American and Hispanic borrowers between 2002 and 2008; showing that on average African-American and Hispanic borrowers paid approximately $159 and $125, respectively, more than similarly-situated white borrowers. The proposed consent order requires the mortgage lender’s successor in interest to pay the $35 million in restitution to consumers. This follows a recent enforcement action against a bank holding company and its bank for violations of ECOA, in which the CFPB used similar statistical analyses to show the discriminatory effect of indirect auto lending market up practices (see December 23, 2013 Alert).

CFPB Amends Asset-Size Exemption under TILA and Home Mortgage Disclosure Act

The CFPB announced an increase to the asset-size exemption threshold for its rule requiring escrow accounts for higher-cost mortgage loans under Regulation Z, the implementing Regulation for the Truth in Lending Act. The asset-size threshold for eligibility for an exemption under Regulation Z increased to $2.028 billion for 2014 from $2 billion in 2013. TILA requires that an escrow account be established by a creditor to pay for property taxes and insurance premiums for certain higher-priced mortgage loan transactions. However, an institution is exempt from this requirement if it meets certain requirements, including any asset-size threshold established by the CFPB. The increase to the asset-size exemption threshold also increases the threshold for small-creditor and balloon payment qualified mortgages. The CFPB also increased the asset-size exemption threshold from $42 million to $43 million under Regulation C, the implementing regulation for the Home Mortgage Disclosure Act. HMDA requires mortgage lenders in metropolitan areas to collect data about their housing-related lending activity and annually report the data to their federal regulator. The increase to the asset-size exemption under both TILA and HMDA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Institutions meeting asset-size limitations are exempt from these requirements under TILA and HMDA.

CFPB Seeks Information on the Mortgage Closing Process

Seeking to “encourage the development of a more streamlined, efficient, and educational closing process as the mortgage industry increases its usage of technology, electronic signatures, and paperless processes,” the CFPB issued a notice and request for information from market participants, consumers, and other stakeholders who work closely with consumers about the “key consumer ‘pain points’ associated with mortgage closing and how those pain points might be addressed by market innovations and technology.” The CFPB is seeking information on areas such as errors and changes at closing, other parties at closing, closing documents, and improving the closing process. For example, the CFPB seeks information on what documents consumers find particularly confusing during the closing process and what resources borrowers use to define unfamiliar loan terms. The information is sought as part of the CFPB’s plan to conduct several initiatives to test and study ways in which the closing process can be improved for consumers.  Comments must be submitted on or before February 7, 2014.

CFPB To Hold Field Hearing on New Mortgage Rules

The CFPB will hold a field hearing on the new mortgage rules in Phoenix, Arizona on January 10, 2014. The field hearing coincides with the effective date of the ability-to-repay and qualified mortgage rule, the mortgage servicing rules, certain provisions of the rules governing loan originator compensation, and the provisions HOEPA (see January 10, 2013 Alert).