The CFPB (Consumer Financial Protection Bureau) recently issued an Advisory Opinion on Digital Mortgage Comparison Shopping Platforms and the potential for RESPA Section 8 issues. At issue are the ways in which these platforms may favor one lender or another when displaying search results to consumers searching for mortgages and real estate settlement services.
RESPA has been in effect for nearly fifty years. One of the reasons for initial enactment of RESPA was concern over costly settlement service costs. The CFPB noted that kickbacks for the referral of settlement services were a common practice at that time and payments for referrals of settlement services was cited a factor in causing excessive settlement costs. Congress attempted to reduce these costs through the prohibitions in RESPA, and largely succeeded.
One of the prohibitions in RESPA Section 8, today found in Regulation X at 12 CFR § 1024.14, is the prohibition against any fees, kickbacks, or things of value for referring settlement services in connection with a federally related mortgage loan. This has become a concern in relation to “Digital Mortgage Comparison Shopping Platforms” (online marketplaces) which allow consumers to search for and compare options for mortgages or other settlement services, which in turn create potential leads for the providers that participate in the platform’s services.
According to the CFPB, the proper functioning of one these online marketplaces is when regardless of whether the lenders and service providers are paying to be listed (advertising) with the platform, when a consumer enters their data and searches for results, the results are displayed in a neutral way, not preferring one service provider over another, unless the consumer’s choices limit or filter the way in which search results are displayed. For example, if the consumer is searching by geographic area, it is not a problem to limit providers by the search area indicated by the consumer.
What the CFPB is focusing on in this advisory opinion is when online marketplaces appear to consumers as if they provide objective comparisons between lenders and settlement service providers but are actually displaying results influenced by the fees paid by the lenders or providers. This could either take the form of some lenders paying one rate and other lenders paying another rate (with the higher presumed to be for enhanced placement), or some lenders not paying for advertising and other lenders paying for advertising. While the advisory opinion focuses on the operator of the online marketplace, RESPA works both ways (paying or receiving) so if the operator is violating RESPA in receiving payment for these referrals, the bank could easily also be found to be in violation by virtue of making the payments.
The bank must be highly aware that when paying for “advertising space” such as a listing with an online marketplace that the payments can only be for “neutral” placement on the website. To the extent that the payment is for non-neutral placement, that can constitute “referral activity,” and so if even PART of the payment is interpreted as attributable to the “enhanced placement,” that can be at least a RESPA Section 8 violation – to the platform operator and/or the bank, if not also a UDAAP concern.
The RESPA Section 8 minefield can be difficult to traverse, so don’t hesitate to reach out to us on the hotline for help understanding this advisory opinion or for help with your RESPA-related advertising questions.
Recently, the Consumer Financial Protection Bureau (CFPB) released research that active-duty Reserve and National Guard members are missing out on protections that are granted to them through the Servicemember Civil Relief Act (SCRA) (CFPB Finds Members of the Reserves and National Guard Paying Millions of Dollars in Extra Interest Each Year | Consumer Financial Protection Bureau (consumerfinance.gov)). Specifically, the 6% interest rate cap that can be requested by the servicemember while on active duty to the tune of $9 million.
The SCRA protections extend to active-duty military members and includes servicemembers who are in the federal military service, including members of the Army, Navy, Marine Corps, Air Force, Coast Guard, Space Force and all commissioned officers on active service with the Public Health Service or National Oceanic and Atmosphere Administration, reservists, and members of the National Guard. Protections under the SCRA are for active duty servicemembers (and their dependents) who enter into the obligation prior to their active-duty status. If they were active duty at origination, these protections do not apply under the SCRA. Many banks do have their own policies for servicemembers that apply to any active-duty member of the military, but the SCRA is more limited in scope.
The Servicemembers Civil Relief Act tends to impact banks on a day-to-day process level in two major ways – It limits the types of actions the bank can take on active duty servicemembers, and secondly, it allows for active-duty service members to request an interest rate reduction during their time of service. The first part includes automatic protection against actions like evictions, foreclosures and importantly here, repossessions on covered servicemembers; specifically, servicemembers with loans secured by motor vehicles are also granted protection against repossession of their vehicle without court order due to a default during their active-duty service.
The SCRA does state that the Servicemember needs to request any of the protections granted and provide documentation to receive the protections. The CFPB is urging Banks to utilize resources and technology to make the process as easy as possible for the Servicemember. They encourage banks to allow submission of documents online, forego the written request and utilize the SCRA database to verify active-duty status.
If you’ve listened to any of our presentations or had a policy review, you know that C/A always highlights the importance of strong policies, procedures, and staff training. A great written program won’t help anyone if it’s not trained on and refreshed from time-to-time. Similarly, hours’ worth of training won’t help employees if they don’t have strong policies and procedures to look back on once training is over. Violations of the SCRA don’t just run the risk of issues on a regulatory exam – they can also cause real reputational damage if the bank is seen by the public as taking advantage of the men and women on active duty.
It’s February, which means we look to nature’s weatherman to see if we should expect an early spring, we enhance our romance on St. Valentine’s Day, and we look at the end of the end of the monthly calendar to figure out if this is one of the 28-day years, or 29-day years. It’s also a fine time for new guidance from our friendly financial regulators, and they rarely disappoint.
In early February both the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) decided to stop letting the CFPB (Consumer Finance Protection Bureau) have all the fun regarding the late 2022 HMDA changes, and both agencies published their own guidance regarding these court-inspired HMDA changes.
As you may recall, in September 2022, a federal court caused a frenzy by stating the threshold of 100 for reporting closed-end covered loans was chosen without proper justification for such a number, and as such the CFPB had no authority to make this change in 2020, so the threshold will revert back to the previous threshold of 25. The court didn’t disturb the open-end thresholds, so those will remain at the current threshold of 200.
In December 2022, the CFPB posted on their website that they do not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions that originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years. Although unaddressed in the CFPB’s post, it was presumed by many that the collection of data should begin on January 1, 2023, in anticipation of being reported in March 2024.
As previously stated, the OCC and FDIC have now published their own guidance about the HMDA changes, which are similar to what was stated by the CFPB.
First, the OCC stated they do not intend to assess penalties for failure to report loan data on reportable closed-end transactions conducted in 2022, 2021, or 2020 for those who originated at least 25 but fewer than 100 closed-end mortgage loans. OCC Exams should also help banks identify compliance weaknesses in this area. Further, the collection and submission of 2023 HMDA data will provide banks with an opportunity to identify problems and improve their HMDA data reporting. The OCC also acknowledged that the HMDA changes would take some time to implement.
Next, the FDIC stated that institutions affected by this change may need time to implement or adjust policies, procedures, and systems to comply with reporting obligations. Additionally, for closed-end mortgage data, the FDIC plans to implement a supervisory approach, similar to that of the CFPB. For those affected FDIC-supervised institutions, the FDIC does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data for 2022, 2021, or 2020 for those who originated at least 25 but fewer than 100 closed-end mortgage loans.
Further, while any FDIC-supervised institution may report data voluntarily for those years, the FDIC does not expect those institutions to collect and report data retroactively. Affected institutions should start collecting data in 2023 and reporting data in 2024.
Finally, we’d be remiss NOT to point out that the regulations do not reflect this change. Should you choose to look to the regulation, you’ll find that the regulation currently states the threshold for reporting covered loans is 100 for closed end. The regulator guidance discussed above makes it clear that banks should be following the 25 closed-end loan threshold, despite what the regulation states. There is currently no timeline to update the regulation, so it’s important to follow the guidance until such time that the regulation is updated. Regulations can be a confusing mess from time to time, the current HMDA situation is no exception. Feel free to reach out to us on the hotline with any HMDA questions you have about reporting thresholds, data points, deadlines or anything else.
Regulation E is a consumer-friendly regulation which is overseen by the CFPB (Consumer Financial Protection Bureau), a consumer-friendly agency. You might anticipate that what comes next is going to be something favorable to consumers, and with good reason.
There has been some debate over whether certain types of transactions are subject to Regulation E, specifically the section relating to error resolution. We all know that Regulation E could benefit from an update to clarify with more precision which types of transactions are covered. Since an update doesn’t look to be on the horizon, the most conservative interpretation is to include more transactions, even when the regulation is unclear about whether they’re to be included.
The latest out of CFPB Headquarters in Washington D.C. is no different. The current debate is over pandemic benefits, such as those extended under the CARES Act, when administered through a state agency, such as how unemployment benefits are handled. When these types of benefits are loaded onto a prepaid debit card, are transactions subject to Regulation E protections?
Perhaps it would be beneficial to review the Reg. E rules pertaining to prepaid cards. Certain categories of these prepaid accounts can fall into the Reg. E definition of account, and are therefore subject to the regulation, including the error resolution portion. Accounts such as payroll card accounts, government benefit accounts, and prepaid cards that can be used as multiple unaffiliated locations for goods or services all meet the requirements of being subject to Regulation E.
Some notable exceptions to the regulation include an account that only has funds from an HSA (Health Savings Account), FSA (Flexible Spending Account), or other medical savings account. Additionally, if the card is considered to be a gift certificate, a store gift card, or a general prepaid card that is marketed/labeled as a gift card, those are also not subject to Regulation E. Finally, accounts established through a third-party and loaded with disaster relief payments or accounts established for distributing needs-tested benefits administered by a state or local agency are also exempt from Regulation E.
As might be evident from the previous two paragraphs, when it comes to unemployment benefits administered through a state agency, but resulting from a disaster such as the pandemic, which rule applies? Are these treated as government benefit accounts subject to Regulation E? Or are these treated as disaster relief payments or need-tested benefits that are not subject to Regulation E?
In taking the conservative approach, the CFPB has recently argued in federal court that these are government benefit accounts because unemployment benefits accounts are set up by the state for the purpose of distributing government benefits which are not need-tested benefits (as unemployment benefits do not take into consideration income or other assets to determine the appropriate level of benefits). In determining that these are government benefit accounts, it’s unnecessary to further make a determination whether these accounts are receiving disaster relief payments, as the Reg. E exemptions for prepaid accounts do not apply if the account is considered a government benefit account. So, once it’s determined to be a government benefit account, none of the exceptions 12 CFR § 1005.2(b)(3)(ii) could apply.
Although this debate now seems settled, many Regulation E transaction debates continue. Whenever you have a Reg. E error resolution question, feel free to reach out to us on the hotline, as sometimes we can provide black and white answers, and other times we can help you navigate the gray areas.