Consumer Credit: Law, Transactions and Forms

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Consumer Credit: Law, Transactions and Forms

Publication 84 Release 74

March 2019

HIGHLIGHTS

New and Updated Chapters

? This release contains updates and revisions to provide the current status of consumer credit law. The release includes discussion of several important recent developments and adds new and revised material on a number of significant topics. Two new chapters are added: Chapter 183A--Special Topics II: Consumer Leases, and Chapter 184A--Special Topics III: Payday, Vehicle Title and Certain High-Cost Installment Loans.

Chapter 151--Truth in Savings Act. In August 2018, the Center for Responsible Lending released a report on the overdraft policies of financial institutions in 2017; see ? 151.05[4]. In July 2018, the CFPB and TCF National Bank agreed to a settlement regarding TCF National Bank's marketing and sale of overdraft services; see ? 151.06.

Chapter 152--Truth in Lending Act. For an overview of The Economic Growth,

Regulatory Relief and Consumer Protection Act ("The Economic Growth Act") and its impact on truth in lending matters, see ? 152.02[3]. The threshold amount for certain TILA exemptions is raised to $57,200, effective January 2019; see ? 152.04[1] and [5]. In a case involving a bank's refusal to remove a charge-off from the plaintiff's credit reports, the Second Circuit held that the arbitration provision in the plaintiff's cardholder agreement did not compel arbitration in the context of bankruptcy proceedings; see Anderson v. Credit One Bank, N.A., at ? 152.06[2]. The Third Circuit affirmed the dismissal of plaintiff's TILA claims on the basis of a Colorado River abstention because of a pending state foreclosure proceeding; see Chambers v. Wells Fargo Bank, N.A., at ? 152.06[4]. The Sixth Circuit held that there is no right to rescind a loan modification agreement entered into with a successor creditor when the agreement included boilerplate language that stated that the modification "amends and supplements" the original note and deed of trust rather than "satisfies

and replaces" them. See Segrist v. Bank of N.Y. Mellon, at ? 152.08.

Chapter 153--Fair Credit Reporting Act. The Economic Growth Act requires the three nationwide consumer reporting agencies to provide "national security freezes" free of charge to consumers and to permit representatives of "protected consumers" to place a security freeze on the credit file of such individual; see ?? 153.04[2] and 153.10. In an Eleventh Circuit decision, a report by loan servicers that a consumer was in default under her mortgage was deemed accurate even though the consumer was making nominal payments under a forbearance agreement with the bank; see Felts v. Wells Fargo Bank, N.A., at ? 153.06[4]. For recent cases on jurisdiction under the FCRA, see ? 153.09[1].

Chapter 155--Fair Debt Collection Practices Act. There is a split among the Circuits and district courts as to whether the F.D.C.P.A. applies to nonjudicial foreclosure proceedings; see ? 155.03[1]. A plaintiff sufficiently alleged that a property preservation company whose principal purpose is the enforcement of security interests was a "debt collector"; see Sifuentes v. Rushmore Loan Mgmt. Servs., LLC, at ? 155.03[1]. There is a disagreement among the Circuits over the collection of time-barred debts and whether a threat of litigation is required to trigger the occurrence of an FDCPA violation; see the discussion at ? 155.03[2]. A threat must be material to constitute a violation of the FDCPA; see Hill v. Accounts Receivable Servs., LLC. at ? 155.03[2]. The FDCPA does not support injunctive relief' see Havranek v. Nationstar Mortg., LLC, at ? 155.05[2]. The burden is on the consumer to show that the debt is primarily for personal, family or household purposes; see Burton v. Kohn Law Firm S.C., at

? 155.07[1]. A company that contracts with a mortgage servicing company to perform a variety of services on properties with defaulted mortgages was not a debt collector under the FDCPA; see Schlaf v. Safeguard Prop., LLC, at ? 155.07[3].

Chapter 157--Home Mortgage Disclosure Act. The Economic Growth Act, Title I, ? 104(a), amends ? 304(i) of the Home Mortgage Disclosure Act by adding a partial exemption from HMDA's data reporting requirements for certain insured depository institutions and insured credit unions (Exempt Institutions). A CFPB rule clarifies, among other things, that Exempt Institutions covered by a partial exemption from having to report certain data fields have the option of reporting those exempt data fields so long as they report all data fields within any exempt data point for which they report data. Notwithstanding the new partial exemptions, new HMDA ? 304(i)(3) provides that an Exempt Institution must comply with HMDA ? 304(b)(5) and (6) if it has received a rating of "needs to improve record of meeting community credit needs" during each of its two most recent examinations or a rating of "substantial noncompliance in meeting community credit needs" on its most recent examination under ? 807(b)(2) of the Community Reinvestment Act. See the coverage at ? 157.02[2] and 157.04[1].

Chapter 158--Community Reinvestment Act. In April 2018, the Treasury Department delivered a memorandum to the FRB, the FDIC and the OCC with recommendations for updating and improving the CRA. The Treasury Department's objective in developing these recommendations was to align CRA activity more closely with the needs of the communities that banks serve, while being conducted in a manner consistent with a bank's safety and soundness. See ? 158.02 for a detailed

review of the memorandum. In the memorandum, the Treasury Department suggested that regulators standardize the CRA examination schedules by creating a standard timeline from when banks are evaluated to when their rating is publicly released; see ? 158.09. Some housing advocates believe that displacement of lowincome tenants resulting from gentrification does not receive sufficient consideration in bank CRA performance evaluations; for a discussion, see ? 158.04. The OCC may downgrade a bank's CRA rating based on evidence of illegal credit practices or discrimination, if appropriate under the circumstances; see ? 158.09. In January 2018, the FRB approved Associated Banc-Corp's acquisition of Bank Mutual Corporation. When approving Associated Bank's acquisition of Bank Mutual Corporation, the OCC specifically stated that establishing a community commitment plan is not a requirement for banks under the Bank Merger Act or the C.R.A. See ? 158.11.

Chapter 163--Consumer Leasing Act. The threshold amount for certain CLA exemptions is raised to $57,200, effective January 2019; see ? 163.03[7] and [11].

Chapter 172A--Open-End Credit-- Credit Cards and other Open-End (Not Home Secured) Credit Plans. Card issuers can avoid a determination of costs incurred for a particular type of violation to set reasonable penalty fees by relying on the rule's safe harbors. Specifically, a card issuer may impose a penalty fee if the dollar amount of the fee does not exceed the specified amounts. See ? 172A.08[2][c] for an updated fee schedule.

Chapter 175A--Closed-End Credit-- Private Education Loans. Provisions of the Economic Growth Act apply to student borrowers under the TILA and the FCRA

and to student financial literacy objectives under the Financial Literacy and Education Improvement Act. Title I, ? 601 of the Economic Growth Act prohibits creditors from declaring a default or accelerating the debt of a private education loan on the sole basis of the bankruptcy or death of a cosigner. Section 601 also requires creditors to release all cosigners from their obligations on the loan within a reasonable timeframe. See ? 175A.03[5].

Chapter 176A--Closed-End Credit-- Residential and Real Estate Credit-- Overview. The Economic Growth Act, Title I, ? 104, provides an exemption for certain depository institutions from the new HMDA reporting requirements that went into effect on January 1, 2018. The new reporting requirements included information concerning points and fees payable at origination, the term of the mortgage and certain interest rate information. See ? 176A.03[1][b]. The Economic Growth Act includes provisions creating a new qualified mortgage safe harbor and provisions governing certain appraisals of loans. Title I, ? 102 of the Economic Growth Act provides an exemption from the TILA requirement that lenders must compensate appraisers in a "customary and reasonable" amount. Section 103 provides for an exemption from appraisal requirements for loans on real property located in rural areas defined by Regulation Z when certain conditions are met. See ? 176A.03[2][b]. Section 106 provides a grace period from state licensing and registration requirements for loan originators waiting for their state licenses and registrations. See ? 176A.03[3].

Chapter 177A--Closed-End Credit-- Mortgage Loans (I)--Dodd-Frank Act, Ability to Repay Rule and Qualified Mortgages. The Economic Growth Act, Title I, ? 101, creates a new safe harbor for Qualified Mortgages (QMs) that are made

and held by a covered institution that meets specified conditions. The safe harbor does not apply if the QM is sold, assigned or otherwise transferred unless certain conditions are met. Sections 102 and 103 apply to appraisers. Section 104 provides an exemption for certain depository institutions from the new HMDA reporting requirements that went into effect on January 1, 2018. Section 106 provides a grace period from state licensing and registration requirements for loan originators waiting for their state licenses and registrations. Section 108 provides an exemption from the TILA escrow requirements for higher priced mortgage loans. Section 109 alters the Truth in Lending/RESPA Integrated Disclosure's general requirement that the Closing Disclosure must be delivered to the consumer no later than three business days prior to consummation. See ? 177A.03[3].

Chapter 178A--Closed-End Credit-- Mortgage Loans (II)--Higher-Priced, High-Cost and Reverse Mortgages. The Economic Growth Act, Title I, ? 108 provides an exemption from the TILA's escrow requirements for higher priced mortgage loans. In general, creditors of HPMLs that secure a consumer's principal dwelling have to establish and maintain an escrow account for the payment of taxes and insurance until the underlying debt is terminated or the consumer requests a cancellation of the account no sooner than five years after consummation. See ? 178A.03[2].

Chapter 180A--Closed-End Credit-- Mortgage Loans (IV)--Closing Disclosures; Escrow Limitations. The Economic Growth Act, Title I, ? 109 alters the Truth in Lending/RESPA Integrated Dis-

closure's general requirement that the Closing Disclosure must be delivered to the consumer no later than three business days prior to consummation. Under ? 109, the three-business-day rule does not apply if the creditor extends a second offer of credit to the consumer and the second offer has a lower APR.

Chapter 183A--Special Topics II: Consumer Leases. New Chapter 183A covers the general disclosure requirements and the disclosure requirements for motor vehicle leases under the Consumer Leasing Act and its implementing regulation, Regulation M. General disclosure requirements are discussed in ? 183A.03[2]. Motor vehicle lease disclosure requirements are reviewed in ? 183A.03[3]. Renegotiations, extensions and assumptions as governed by Reg. M are covered in ? 183A.03[4].

Chapter 184A--Special Topics III: Payday, Vehicle Title and Certain HighCost Installment Loans. New Chapter 184A covers payday loans and other highcost extensions of credit that are not covered under Regulation Z of the Truth in Lending Act. Specifically, the chapter deals with the rules and regulations, including an ability-to-repay rule (ATR Rule) and a prohibition on payment transfer attempts, for covered short-term loans having a term of 45 days or less and covered longer-term (greater than 45 days) balloon payment loans. Section 184A.04 discusses the scope of the rule. The ATR rule is covered in ? 184A.05. Matters involving payments are reviewed in ? 184A.06. Section 184A.07 covers information furnishing and record keeping requirements.

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