fair lending tila and respa integrated disclosures (“trid”) and … · 2016-05-03 · •tila...
TRANSCRIPT
Fair Lending – TILA and RESPA Integrated Disclosures (“TRID”) and Consumer Financial Protection Bureau (“CFPB”)
Presented byAnthony J. Sylvester, Esq.Craig L. Steinfeld, Esq.Sherman Wells Sylvester & Stamelman LLP
•TRID – TILA and RESPA Integrated Disclosure Forms
•Purpose of TRID is to simplify applications for consumermortgages
•Discussion will provide brief history and current status
•Consumer Financial Protection Bureau (“CFPB”) and recentchallenge to CFPB authority
Overview
•TILA and RESPA forms were originally developed by twodifferent federal agencies under two federal statutes
• Information on the TILA and RESPA forms was overlappingand the language was inconsistent
•As a result, consumers found forms confusing; lenders foundforms burdensome
History of TRID
•Under the Dodd-Frank Wall Street Reform and ConsumerProtection Act (“Dodd-Frank”), the Consumer FinancialProtection Bureau (“CFPB”) was required to integrate the TILAand RESPA mortgage loan disclosures
• In November 2013, the CFPB finalized a rule with the new,integrated disclosures – Integrated Mortgage Disclosures Underthe Real Estate Settlement Procedures Act (Regulation X) and theTruth In Lending Act (Regulation Z) (the “TILA-RESPA Rule”)
• 15 USC 1604(b) and 12 CFR 1026
History of TRID
• In February and July 2015, the CFPB issued final rules thatmodified the 2013 TILA-RESPA Rule
•Became effective for applications from a consumer forclosed-end credit transactions secured by real property on orafter October 3, 2015 – Creditor or mortgage broker requiredto provide the new integrated disclosures
History of TRID
•Most closed-end consumer transactions secured by real estateare subject to TRID
• Loans made by a “creditor” as defined in 12 CFR 1026.2(a)(17)(generally a person or company that regularly extends credit)
• The following are not subject to TRID:
Home equity lines of credit
Reverse mortgages
Loans secured by mobile homes or dwelling not attached to real estate
Transactions Covered By TRID
•Certain loans currently subject to TILA butnot RESPA are subject to TRID:
Construction-only loans
Loans secured by vacant land or by 25 or moreacres
Transactions Covered By TRID
• Combines prior 4 forms required by TILA andRESPA into 2 forms:
Good Faith Estimate and initial Truth-in-Lendingdisclosure combined into new Loan Estimate
HUD-1 and final Truth-in-Lending disclosurecombined into new Closing Disclosure
TRID Obligations
•Good-faith estimate of credit costs and transaction terms
•Required within 3 business days of receipt of application
•Must be in writing and contain the information required bythe regulations
•Generally, must use the standard model form
•Can only be corrected or revised to reflect increasedcharges in certain situations as set forth in the regulations
TRID Obligations – Loan Estimate
•Reflects actual terms and costs of the transaction
•Required to be delivered no later than 3 business days prior toconsummation of the loan
•Must be in writing and contain the information required by theregulations
•Generally, must use the standard model form
•Must provide corrected disclosure if actual terms or costs changeprior to consummation – may require additional 3-day waitingperiod in certain circumstances
TRID Obligations – Closing Disclosure
•Established by Dodd-Frank – July 2011
•Consolidates most federal consumer financialprotection authority in one place
•January 2012 – President Obama appointedRichard Cordray as first Director of CFPBRecess appointment
Confirmed July 2013 by Senate to 5-year term
CFPB
• Core functions:
Write rules, supervise companies and enforce federal consumer protectionlaws
Restrict unfair, deceptive or abusive acts or practices
Take consumer complaints
Promote financial education
Research consumer behavior
Monitor financial markets for new risks to consumers
Enforce laws that outlaw discriminatory and other unfair treatment inconsumer finance
CFPB
•Challenge to authority and constitutionality ofCFPB
•Pending before the Court of Appeals for the DCCircuit, Docket No. 15-1177
•Oral argument on 4-12-16
•Case challenges CFPB’s imposition of $109 millionpenalty for RESPA violations
PHH Corp v. CFPB
• In January 2014, CFPB charged PHH with violations ofRESPA 8(a) and 8(b)
•Charges related to PHH’s referral of mortgage insurancebusiness to mortgage insurers in exchange for reinsurancecontracts with PHH’s wholly-owned subsidiary
•CFPB alleged premiums for reinsurance not for servicesactually furnished/performed and greatly exceeded value –essentially a “kickback” scheme
PHH Corp v. CFPB
•PHH claims exempt under RESPA 8(c)(2) –payments for actual services performed notkickbacks
•PHH also claims practices were the same as thosedeemed permitted by HUD in a 1997 letterinterpretation of RESPA 8(c) – consistent withHUD subsequent interpretations
PHH Corp v. CFPB
•ALJ rejected PHH’s RESPA 8(c)(2) defense
•ALJ agreed captive reinsurance generally permitted if paymentsfor services furnished/performed and are bona fide and do notexceed value of services
•ALJ also ruled violations limited to loans closed 3 years prior toCFPB’s creation in July 2011
•According to ALJ, premiums PHH received were not bona fide andexceeded the FMV of the services performed
•ALJ required disgorgement of $6.4 million in premiums
PHH Corp v. CFPB
•Both PHH and CFPB appealed ALJ’s decision to CFPBDirector Richard Cordray – first appeal of administrativeenforcement proceeding before the CFPB
•Cordray decision dated June 4, 2015
•Cordray rejected both PHH’s and ALJ’s interpretation ofRESPA 8(c)(2)
•Cordray held that payments must be bona fide to be lawful– i.e., not tied in any way to referral of business
PHH Corp v. CFPB
• Cordray determined that PHH’s reinsurance payments violated RESPAbecause they were tied to business referrals
• Cordray also found that 1997 HUD letter “inconsistent” regardinginterpretation of RESPA 8(c)(2) as exemption
• Cordray also disagreed with ALJ’s limitation to premiums for loans closedwithin 3-year limitations period after creation of CFPB – requireddisgorgement of all premiums received after July 2008, not just thosereceived from loans that closed after July 2008
• Ordered disgorgement of $109 million in premiums
• Also prohibited PHH from entering into any affiliated reinsurance agreementfor 15 years
PHH Corp v. CFPB
•PHH challenged CFPB’s rulings regardingRESPA 8(c)(2) and the statute oflimitations before the D.C. Circuit
•PHH also argued that the CFPB isunconstitutional
PHH Corp v. CFPB
•Authority vested in single Director who canonly be removed by the President for cause
•Not directly answerable to Congress becausefunded through Federal Reserve System
•Legislative, Executive and Judicial power allin a single person
PHH Corp v. CFPB
•Leading up to the argument on 4-12-16,Court asked for additional briefs onconstitutionality of CFPB
•Much of the oral argument focused onthe constitutionality issue
PHH Corp v. CFPB
•Court appeared troubled by CFPB’sstructure
•Appeared to acknowledge same concernsraised by PHH regarding concentration ofpowers in single person who is notanswerable to President or Congress
PHH Corp v. CFPB
SHERMAN WELLS SYLVESTER & STAMELMAN LLP
210 Park Avenue, 2nd Floor, Florham Park, NJ 07932
Craig L. Steinfeld, Esq.Partner
Anthony J. Sylvester, Esq.Partner
Anthony J. [email protected]
Anthony J. Sylvester is a founding partner of Sherman Wells Sylvester & Stamelman LLP. He has practiced law inNew Jersey and New York as a commercial litigator for 30 years. He has a diverse New Jersey Chancery and LawDivision and New York Supreme Court practice and Federal Court commercial litigation practice.
Anthony has substantial experience representing financial institutions in complicated, high-stakes litigation. Inparticular, he has handled numerous loan recovery and workouts and litigated commercial foreclosureproceedings in New Jersey and New York, a number of which concluded with sheriff's sales. Anthony also haslong-standing and significant experience in defending banks, financial institutions and mortgage servicers againstconsumer finance based claims. This includes claims brought under Articles 3 and 4 of the Uniform CommercialCode, the Fair Credit Reporting Act, the Truth in Lending Act, RESPA, HOEPA, and state consumer fraud statutesas well as claims for unfair lending and/or business practices. He has defended consumer finance class actions inboth State and Federal Court.
Anthony has been named among the top banking lawyers in New Jersey by Best Lawyers in America , a peerreview of US Lawyers. Best Lawyers named him the 2014 Banking and Finance Litigation "Lawyer of the Year" forthe Newark region. He has served as the New Jersey State Editor of CarLaw (http://www.carlaw.com) andHouseLaw (http://houselaw.com), monthly legal reports for the lending industry published by the ConsumerCredit Compliance Company. Anthony is also a member of the Conference on Consumer Finance Law.
In addition to his work for financial institutions, Anthony has also for many years maintained a wide-ranging stateand federal court commercial litigation practice for clients in other industries. He regularly appears on behalf ofthese clients in courts in various vicinages in New York and New Jersey State and Federal Courts. BenchmarkLitigation named him a "Local Litigation Star" in its Definitive Guide to America's Leading Litigation Firms andAttorneys. Thompson Reuters has included him on New Jersey's "Super Lawyers" list.
Craig L. [email protected]
Craig L. Steinfeld is a Partner in Sherman Wells Sylvester & Stamelman LLP where he concentrates his practice incommercial litigation and has substantial experience representing financial institutions in matters including loanrecovery and workouts, commercial foreclosure proceedings, negotiable instruments, commercial transactions andfidelity bond claims.
Admitted to practice in New Jersey and before the United States District Court for the District of New Jersey and theDistrict of Columbia Court of Appeals, Craig is Chair and a member of the Board of Directors of the Banking LawSection of the New Jersey State Bar Association. Among his representative matters, he wrote the appellate brief insupport of the argument that federal law preempts state law with respect to certain attorney's fees that lenders maypass on to borrowers, which served as the basis for a New Jersey Supreme Court decision that overturned the rulingsof the trial court and appellate division (Turner v. First Union National Bank, et al., 162 N.J. 75 (1999)).
Craig received his B.S. from the University of Delaware and his J.D. from Rutgers University School of Law.