Tuesday, November 29, 2022

June 2012 Legal Briefs

  • Supreme Court Rules in RESPA Fee Case
  • ATM Disclosures
  • UTMA Accounts and the Custodian That Just Won’t Let Go
  • Consumer Loan Dollar Amounts Adjust July 1
  • Fair Housing Poster Update
  • Agency Updates

By Andy Zavoina

Supreme Court Rules in RESPA Fee Case

You may have read recently that the United States Supreme Court ruled in favor of lenders in the collection of fees on mortgage loans. Depending on the source of what you read, you may have read that lenders (Quicken Loans in this case) won on a technicality because it charged unearned fees, delivered nothing for the fees, and kept the amounts paid without splitting them with anyone else. You may have also heard that the Supreme Court has essentially authorized mortgage lenders to charge fees that the lender may retain and this will be a new revenue source for banks and other lenders. In this article we will take a comprehensive look at Freeman vs. Quicken Loans. You will then be able to answer questions from consumers weary of the fees they are being charged, as well as management who may believe there is a new and potentially unlimited revenue source available to them.

First, the Real Estate Settlement Procedures Act (RESPA) section that was in dispute (12 USC 2607(b)):
No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

The above essentially says that unearned fees, those charged for which no services were provided, violate RESPA only if they are split between two parties. (The emphasis added in my own.) This is commonly referred to as a kickback. The court read what the law literally says and in its ruling opined there was no splitting, and therefore this section of RESPA was not violated.

As some background on the case, it originated in Louisiana. Three couples obtained mortgage loans from Quicken Loans, including one from Tammy and Larry Freeman. In 2008 separate cases were filed which claim that Quicken Loans violated RESPA by charging them a fee without actually providing a any service for it. The Freeman’s as an example claim they paid a loan discount fee, but did not receive a discounted rate. Quicken Loans argued that the cases should be combined and moved to a Federal court, which was done.

The basis of the plaintiff’s argument was that § 2607(b) is intended to forbid unearned fees regardless of a third party collecting a portion. (We’ll look more at Quicken’s side in a moment as they don’t believe the fees were unearned, but that point is secondary to splitting.) The Fifth Circuit court agreed with Quicken that because there was no splitting of fees, there was no violation of RESPA. Similar cases have been argued in other courts. The Fourth, Fifth, Seventh and Eight Circuits agreed that RESPA limits third party kickbacks and the Second, Third and Eleventh Circuits believe that the Act applies to all unearned fees. The Department of Housing and Urban Development (HUD) agreed with the latter and that all unearned fees were illegal. In a 2001 policy statement HUD interpreted § 2607(b) "as not being limited to situations where at least two persons split or share an unearned fee." Remember, however, that HUD no longer has rulemaking authority over RESPA as it was transferred to the Consumer Finance Protection Bureau (CFPB).

The U.S. Supreme Court has now weighed in that the law addresses splitting fees and Congress needs to be more specific if that is not what was intended. In its unanimous decision the Supreme Court said it considered the plan language of RESPA and that it says "no person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service … other than for services actually performed." The Court determined that "by providing that no person “shall give” or “shall accept” a “portion, split, or percentage” of a “charge” that has been “made or received,” “other than for services actually performed,” § 2607(b) clearly describes two distinct exchanges.” The Court also noted that Congress may well have intended that existing remedies for fraud are available through State laws and those are sufficient to address fictitious or unearned fees.

Quicken Loans maintains that it has never charged unearned fees. It maintains that loan discount fees were disclosed, were charged, and were retained only by Quicken Loans. In a statement on its website, Quicken Loans defines the loan discount fee as another term for a point, paid to decrease an interest rate and/or to compensate for other negative credit information. The points were disclosed beginning on the Good Faith Estimate and were charged as originally described. Months after closing the suits were filed and the claim was made that the fees were unearned. Quicken Loans is clear that the consumers never said the fees were split and never said the loan rates were unreasonable. Two of the three original cases had the ability to rescind but did not. Quicken Loans believes it proved that the loan discount fee in each instance was not unearned because the fee was a component of the loan terms and the total pricing structure. As an example of the points being a component of the finance charge, consider the following examples:

Loan 1 Loan 2 Difference
Loan Amount $200,000.00 $200,000.00 $0.00
Interest Rate 4.375% 3.875% .500%
Years 30 30 0
Payment $998.57 $940.47 -$58.10
Points as a % 0.00% 2.00% 2.00%
Points as a $ $0.00 $4,000.00 $4,000.00
Total Interest $159,485.39 $138,570.70 -$20,914.69

The points paid in the example above reach a breakeven point in 38 months. At that point the interest paid on the discounted loan (Loan 2) is $3,140.51 less than is paid on the full priced loan (Loan 1) and the balance owed on the loan is $932.85 less. The interest saved plus the added equity totals $4,073.37 which exceeds the $4,000.00 in points paid. Quicken Loans uses this example as a reason consumers pay points and that this is why the fee is earned.

Lenders should remain cautious about the fees that are charged to ensure they are disclosed and are earned. We may see additional guidance from the CFPB in this very pro-consumer economy and Congress could even provide clarity to the law. These are both more likely if abuses are reported following this ruling. Absent these, as the Supreme Court noted, State laws protect consumers from abusive fees already.

By Andy Zavoina

ATM Disclosures

Reg E requires you to notify an ATM user that a fee will or may be imposed for the use of that machine on certain transactions. The requirements are at § 1005.16. (Does the citation look funny? It’s because Reg E is now a CFPB rule and its regs are in the 1000 range, rather than in the 200s where the Federal Reserve Board’s rules are found.) This is somewhat a redundant disclosure because not only do you have to provide the notice on the ATM screen or on paper, but it must be posted on the ATM as well.

In the last year there have been many lawsuits or lawsuit threats over a bank’s failure to make this notice available on the ATM itself. We have heard of users who go from ATM to ATM looking for the missing disclosure. When one is found, they use the machine, obtain the receipt for proof of use, and take a photo of the machine as evidence that there is no second disclosure. The bank is then asked if they want to settle or go to court. One law firm in Texas has filed over sixty cases in federal courts in Texas, Alabama, and Tennessee. A lawyer in Pennsylvania is using the ATMs herself and filing on her own behalf.

Under Reg E the penalties for class action suits are the lesser of $500,000 or 1% of the bank’s net worth. Add to this the attorney fees and court costs and you have an expensive proposition. And yes, there are solicitations seeking users who have been “harmed” buy this disclosure omission so that a class is effectively formed.
Banks do not have to settle. Obviously the less expensive option may be to settle with the complainant and put a new sticker on the ATM. But there are defenses available. The bank, as an ATM operator, is not liable for damages if:
* The required notice was removed as a result of vandalism or other acts by third parties
* The alleged violation was not intentional and resulted from a bona fide error, or
* The bank can demonstrates a good faith attempt at compliance with any rule, regulation, or interpretation by the Board of Governors of the Federal Reserve Board.

Cooler heads may be beginning to prevail. In May 2011 there was a Pennsylvania case, Riviello v. Pennsylvania State Employees Credit Union (PSECU), filed. (Not to be confused with Riviello v. Tobyhanna Army Depot Federal Credit Union, or Riviello and Prukala (a class action) against First Data Inc., of Atlanta, Ga.)

In a scenario similar to what is described above, Riviello used an ATM and claimed there was no disclosure on the machine. Photos were entered into evidence supporting the claim of the CU. This is an important point and one you may take note of the next time you service your ATMs.) PSECU presented dated photos showing the machine with the fee notice attached, as well as signed affidavits attesting that no credit union employee had removed the notice. Those who maintain the ATMs also have procedures to regularly check of these disclosures. The CUs files noted that in May 2011 the notice was found to be removed at the machine in question. It was replaced and a photo was taken. The photo showed the new sticker adjacent to an area where glue residue could be seen. The CU indicated this was from the disclosure sticker that had been removed. The judge ruled that Riviello failed to adequately rebut evidence entered by the credit union. U.S. District Judge Robert Mariani cited section 1693 (h) of the U.S. Code, which releases an ATM operator from responsibility for a missing fee placard if: a) the operator initially posted the placard in accordance with law; and b) the notice is subsequently removed by anyone other than the operator. This case should prompt banks to use photos and strong procedures to support their case when a suit such as this is brought.

Additionally, H.R. 4367 is a bill to protect banks from frivolous lawsuits by repealing the outdated requirement that a placard must be attached to ATMs stating that a fee may be charged. There is now a companion bill, S. 3204 which has been supported by many state banking associations including the OBA. Your bank may consider a call, letter, email or other contact with its elected representatives in Washington in support of S. 3204.

By Pauli D. Loeffler

UTMA Accounts and the Custodian That Just Won’t Let Go
 

The Problem. There are few bigger headaches than when the Custodian of a UTMA account decides that the beneficiary who is no longer a minor should not be given the funds because the minor is “irresponsible,” and the minor shows up at the bank wanting to be paid.

The Uniform Transfer to Minors Act is found in Title 58 of the Oklahoma Statutes, Sections 1201-1225. Section 1221, which deals with transfer of the property upon the minor’s attainment of majority or death, states:
A. The custodian shall transfer in an appropriate manner the custodial property to the minor, the minor’s estate, or the minor’s beneficiary as prescribed in paragraph 2 of subsection A of Section 1210 of this title upon the earlier of:
1. The minor’s attainment of eighteen (18) years of age with respect to custodial property transferred pursuant to the provisions of Section 1205 or 1206 of this title, unless the transfer is delayed pursuant to subsection B of this section; or
2. The minor’s attainment of majority pursuant to the laws of this state with respect to custodial property transferred pursuant to the provisions of Section 1207 or 1208 of this title; or
3. The minor’s death.
B. A transfer required by paragraph 1 of subsection A of this section may be delayed until a specified time after the minor attains eighteen (18) years of age but not later than when the minor attains twenty-one (21) years of age. The time for a transfer pursuant to this subsection must be specified at the time of the transfer whether made under Section 1210 of this title or by will or trust and shall be in substantially the following words: "The custodian shall transfer this property to (name of minor) on (specified date) when (he or she) reaches the age of (age, after eighteen (18) years and at or before twenty-one (21) years)."

Unless the deposit agreement or a separate document states an age not to exceed 21 years, the Custodian must release the funds to the minor upon reaching age 18. When the Custodian refuses or neglects to pay the beneficiary on or after he reaches the designated age, may the bank simply pay him upon proof of identity and majority?

Unfortunately, the answer is “no.” The problem is that Section 1216 provides that the Custodian is entitled to reasonable compensation out of custodial for expenses incurred performing custodial duties so the Custodian may have a claim to some of the funds in the UTMA account.
Some Solutions. The Custodian is a fiduciary and failure to abide by the UTMA agreement constitutes a breach of fiduciary duty. The beneficiary of the account may sue the Custodian for the breach of fiduciary duty to obtain the funds as well as attorney fees, costs and any damages for the breach. Pointing this out to the Custodian may “persuade” her to write that check to the beneficiary. This is also an option you may suggest to the beneficiary who is asking for his money, but most 18 year olds are unlikely to either retain an attorney or pursue the matter in court on their own. Another option is to send the Custodian an “UTMA Account Closing Letter” recently drafted by Mary Beth Guard:

Dear ___________:
Our records indicate that you are the custodian on an account for ______________________ pursuant to the Oklahoma Uniform Transfers to Minors Act. Our account documentation indicates that the minor, ______________________, has reached the age for release, and any remaining transactions on the account should be conducted immediately. If you have not closed the account and disbursed the balance to ______________________ within thirty days of the date of this letter, we will close the account at that time.
This will provide the Custodian notice and opportunity to obtain reasonable reimbursement for any outstanding expenses while allowing the bank to close the account and pay the beneficiary. If the Custodian requests the bank to close the account before the thirty days has expired, a cashier’s check should be made payable to the beneficiary.
How to Avoid the Situation in the First Place. The easiest way for the bank to avoid getting in the middle of a Custodian v. Beneficiary battle is to simply have a clause in your UTMA Account Agreement as follows:
The bank is authorized to transfer the funds in the UTMA Account to (name of minor) on (specified date) when (he or she) reaches the age of ____ (18 years, unless some age at or before 21 years has been designated at the time of account opening).

If the bank is using a form UTMA account agreement provided by their software provider, this clause may be added by way of an addendum to that agreement.

Granted there are times when the beneficiary may be addicted to drugs or alcohol or under the influence of others who are after the money, but in that event, it is neither the Custodian’s nor the bank’s decision to withhold the money. A conservator or guardian needs to be appointed by a court of competent jurisdiction to oversee the appropriate use of the funds.

By Pauli D. Loeffler

Consumer Loan Dollar Amounts Adjust July 1

Pursuant to Title 14A O.S. Section 1-106 the Consumer Credit Administrator adjusts the dollar amounts for inflation of various sections of Oklahoma’s Uniform Consumer Credit Code (U3C). A new set of increased U3C dollar amounts takes effect on July 1, 2012. You may access the table of sections and amounts at: http://www.ok.gov/okdocc/documents/2012%20Dollar%20Rate%20Chart.pdf

Increased Late Fee. Questions regarding charging late fees on consumer loans are definitely in my “Top Twenty” request list. The maximum late fee that may be assessed on a consumer loan is the greater of (a) five percent (5%) of the unpaid amount of the installment or (b) the dollar amount provided by rule of the Administrator for this section pursuant to Section 1-106. As of July 1, 2012, the amount per under (b) will increase by $.50 to $23.50.
Remember that before a bank can charge any late fee, the consumer must agree to it in writing. Any time a loan is originated, deferred or renewed, the bank is given the opportunity to get the borrower to consent in writing to the new $23.50 portion of the late-fee formula. However, if a loan is already outstanding and is not being modified or renewed, a bank has no way to increase the amount of late fee that the consumer has previously agreed to pay if your loan agreements state a set dollar amount.

On the other hand, if the late-fee provision allows for the greater of 5% of the delinquent installment payment or the maximum dollar amount established by rule of the Consumer Credit Administrator from time to time, or as allowed by law, the late fee may be reset for the increased fee permitted when the amount is reset.
Finally, I get a lot of questions on whether a late fee may be charged on a single pay note. The answer is “no” even

if your note provides for this. Late fees can only be assessed for late installments, and a single pay note does not have installments as defined in Title 14A O.S. Sec. 1-301:
13) "Payable in installments" means that payment is required or permitted by agreement to be made in:
(a) two or more periodic payments, excluding a down payment, with respect to a debt arising from a consumer credit sale pursuant to which a credit service charge is made;
(b) four or more periodic payments, excluding a down payment, with respect to a debt arising from a consumer credit sale pursuant to which no credit service charge is made; or
(c) two or more periodic payments with respect to a debt arising from a consumer loan.
If any periodic payment other than the down payment under an agreement requiring or permitting two or more periodic payments is more than twice the amount of any other periodic payment, excluding the down payment, the consumer credit sale, consumer lease, or consumer loan is "payable in installments."
Another question I get asked a lot is: “What is the maximum late fee for commercial loans?” The answer: with a

commercial loan, you are free to contract for whatever late fee you like provided it does not “shock the conscience of the court.”
“3-508B”, “3-508A” and “3-511” Loans. Some banks make small consumer loans based on a special finance-charge method that combines an initial “acquisition charge” with monthly “installment account handling charges,” and does not have a stated maximum annual interest rate. The requirements for such loans are outlined in Section 3-508B of the U3C.

The permitted principal amount for one of these small loans just mentioned has been $1,380.00-$4,600.00, but is adjusting to $1,410.00-$4,700.00 at July 1.

The specific fees chargeable on one of these “508B” loans depend on where the loan falls within certain dollar brackets. Both the dollar brackets and the fees chargeable within each bracket are adjustable for inflation, and the revised amounts as of July 1 are set out in more detail in the chart at the end of this article.

Lenders making “508B” loans should be careful to promptly change to the new dollar amount brackets, and the new permissible fees within each bracket, on July 1. Because of peculiarities in how the bracket amounts are adjusted, using a chart with the old rates after June 30 (without shifting to a revised chart) might result in excess charges for certain small loans. The American Bank Systems 3-508B pricing calculator for 2011 can be found at this link:
http://www.americanbanksystems.com/3508B/
Please check back for the updated dollar amounts on or after July 1, 2012.

The “maximum rate of interest” allowable on small loans calculated by the other available finance charge method (under Section 3-508A) will also change because of adjustments for inflation on July 1. The maximum consumer-loan dollar amount on which a blended interest rate higher than 21% can be charged by the 3-508A method will increase from $4,600 to $4,700.

Also available from American Bank Systems is an online chart showing the maximum interest rate chargeable on “508A” loans of various dollar amounts as of July 1, 2011, as well as a calculator for “508B” loans. It can be found at: http://www.americanbanksystems.com/compliance/3508B_2011.pdf
A new chart and calculator, using the amounts taking effect on July 1, 2012, should be available soon.

Finally, I get a lot of calls when lenders get a warning that a loan may exceed the maximum interest rate, but invariably the banker says the interest rate does not exceed alternative non-blended 21% rate allowed under 3-508A according to their calculations. Usually, the cause for the red flag on the system is Section 3-511 for which loan amounts also adjusts annually. Here is the section as originally promulgated along with the amounts as of July 1, 2012. The italicized portion of the statute is nearly always the reason for the notification:

Supervised loans, not made pursuant to a revolving loan account, in which the principal is One Thousand Dollars ($1,000.00) [$4,700 on July 1, 2012] or less and the rate of the loan finance charge calculated according to the actuarial method exceeds eighteen percent (18%) on the unpaid balances of the principal, shall be scheduled to be payable in substantially equal installments at equal periodic intervals except to the extent that the schedule of payments is adjusted to the seasonal or irregular income of the debtor; and
(a) over a period of not more than forty-nine (49) months if the principal is more than Three Hundred Dollars ($300.00) [$1,410 on July 1, 2012] or
(b) over a period of not more than thirty-seven (37) months if the principal is Three Hundred Dollars ($300.00) [ $1,410 on July 1, 2012] or less.
The reason for the warning is generally the result of the loan involving a single pay note, but an interest only note will also trigger the red flag when the amount of loan falls within the parameters of this section.
Dealer Paper “No Deficiency” Amount. If dealer paper is consumer-purpose and is secured by goods having an original cash price less than a certain dollar amount, and those goods are later repossessed or surrendered, the creditor cannot obtain a deficiency judgment if the collateral sells for less than the balance outstanding. This is covered in Section 5-103(2) of the U3C. This dollar amount was previously $4,600, and increases to $4,700 on July 1.

 

By John S. Burnett

Fair Housing poster update
 

With all of the changes being brought about by the Dodd-Frank Act, it’s not surprising that we’ve also seen some confusion over some of the notices and posters – the "regulatory wallpaper" if you will – that banks are supposed to display. Which brings us to the question of which version of the venerated Fair Housing poster should be seen in the lobbies of our banks.

To begin with, the posters are required under regulations issued by the Department of Housing and Urban Development (HUD), at 24 CFR Part 110, under the authority of the Fair Housing Act (FHA). There is a provision in those rules which provides that HUD may grant a waiver permitting the substitution of a poster prescribed by a Federal financial regulatory agency for the HUD-prescribed poster.

• The HUD poster includes an address to which complaints of discrimination may be sent (U.S. Department of Housing and Urban Development, Assistant Secretary for Fair Housing and Equal Opportunity, Washington, DC 20410), and prominently displays the Equal Housing Opportunity logo. A PDF file of the poster can be found on the HUD website (it varies slightly from the version in the regulation by including consumer complaint telephone contact numbers).

• The Federal Reserve Board, in a 1989 Board Order, required that an Equal Housing Lender poster, which includes the FHA logotype (the frame building with the equal sign) and the words "Equal Housing Lender." In 2007 (Consumer Affairs Letter CA 07-6), the Board updated the addresses to be included on the poster for the mailing of discrimination complaints to the HUD address above (for processing under the Fair Housing Act), and "Federal Reserve Consumer Help, PO Box 1200, Minneapolis, MN 55480" for processing under Federal Reserve regulations. This poster should be displayed by all state banks that are members of the Federal Reserve System.

• The FDIC’s Fair Housing regulation at 12 CFR Part 338 requires that state-chartered banks that are not members of the Federal Reserve System display an Equal Housing Lender poster (including the FHA logotype and the words "Equal Housing Lender") which includes the HUD address above plus "FDIC Consumer Response Center, 1100 Walnut Street, Box #11, Kansas City, MO 64106" (although the regulation still includes an old address, the FDIC informed banks displaying its poster they should update the address "as soon as practicable" in FIL-18-2011, issued on March 25, 2011. An identical poster requirement for state savings associations is found in the FDIC’s Regulations Transferred from the Office of Thrift Supervision at 12 CFR 390.146.

• The Office of the Comptroller of the Currency (OCC) has no separate FHA poster requirement for national banks. Those banks, therefore, should adhere to the HUD regulation and display HUD’s Equal Housing Opportunity poster.

• The OCC, however, did adopt regulations (transferred from the OTS) at 12 CFR 128.5 that require federal savings associations to display an Equal Housing Lender poster. The regulation does not include the OCC complaint contact address, but OCC Bulletin 2011-41 requires that savings associations update their posters to include "Office of the Comptroller of the Currency, Customer Assistance Group, 1301 McKinney Street, Suite 3450, Houston, TX 77010-9050."
One last thing – the Fair Housing Act was not one of the consumer protection laws reassigned to the Consumer Financial Protection Bureau for rulemaking. So banks that are over $10 billion in assets should continue to look to HUD and their Federal prudential regulators – the OCC, FRB and FDIC – for any changes to this poster requirement.

By Any Zavoina and John S. Burnett

Agency Updates
 

Ability to Repay. On May 11, 2011, the Federal Reserve published a request for public comment on the documentation and procedures pertaining to consumers’ ability a higher-priced mortgage loan. (Federal Register / Vol. 76, No. 91, page 27390.) Did your bank comment before the July 22, 2011 deadline? If not, the Consumer Financial Protection Bureau (CFPB) which now has “ownership” over this has re-opened the comment period until July 9, 2012. The proposal would require creditors to determine a consumer’s ability to repay a mortgage loan and would set minimum underwriting standards for home mortgages. The CFPB is specifically requesting comments on additional information it has obtained on the performance of securitized mortgage loans and on certain related matters. The CFPB request is here, http://files.consumerfinance.gov/f/201205_cfpb_Ability_to_Repay.pdf.
FRB Commercial Bank Exam Manual – The Federal Reserve Board (FRB) has updated its Commercial Bank Exam Manual. This is used for Safety & Soundness exams. If the FRB is your regulatory agency you need to know what questions they will ask in an exam. They are giving you these in one PDF file that is almost 7MB. You can find links to the entire manual or just sections here. http://www.federalreserve.gov/boarddocs/supmanual/supervision_cbem.htm

Mortgage Points and Fees Simplified. The CFPB announced on May 12, 2012, that it is considering proposing rules this summer that would affect consumer mortgage lending. In particular, these rules will:
• Require an interest rate reduction as a trade-off for discount points
• Require lenders to offer a no-discount-point option
• Ban "origination points" that vary with loan amounts
• Equalize qualification requirements for bank and non-bank mortgage loan originators, including training for bank MLOs
• Restrict dual compensation of loan originators
• Clarify rules prohibiting loan originator compensation based on loan terms
• Implement a requirement that an MLO’s unique identifier be provided on loan documents.
As compliance departments consider comment letters, budgets and informing boards and senior management about the potential future impact of new rules, this should be on the list.

Mortgage Servicing Change is in the Wind. Congress assigned many tasks – some would say too many – to the Consumer Financial Protection Bureau. One of those tasks is the reform of mortgage loan servicing. The Bureau recently provided bankers and other servicers a taste of what to expect when it offers a set of proposed new rules, due this summer, to address a perceived lack of transparency and accountability among servicers. According to the Bureau, “many borrowers have complained that they did not receive the information they needed to help avoid foreclosure. Other borrowers’ troubles worsened because they found it difficult to get answers from their servicers, or get errors corrected when they occurred.” Among the rules under Bureau consideration are those that would
• Require clear monthly mortgage statements (or coupons) with breakdowns of payments into principal, interest, fees and escrow; clear due dates and amounts due and, as applicable, alerts and information about counselors who can help borrowers work with servicers to avoid foreclosure. The Bureau posted for comment a prototype mortgage statement form in February.
• Call for advance warnings of interest rate adjustments
• Provide options for avoiding costly “force placed” insurance, such as more advance notice and pricing information.
• Require servicers to make good-faith efforts to contact delinquent borrowers and inform them of options to help avoid foreclosure; and provide timely, complete and accurate information about options when contacted by a borrower having difficulty making payments.
• Require prompt application of a borrower’s payments
• Require that records be kept accurately, documents maintained security and requested information provided promptly.
• Require quick resolution of a consumer’s error claims
• Mandate that servicers maintain a dedicated, empowered foreclosure prevention team to help troubled borrowers, with direct, easy and ongoing consumer access.
The Bureau plans to publish proposed rules this summer, and have final rules in place in January 2013.

Arbitration clauses will also get Bureau scrutiny. On another consumer-protection front, the Bureau has announced a public inquiry into how consumers and financial services companies are affected by arbitration and arbitration clauses, to help the Bureau “assess whether rules are needed to protect consumers.” This is yet another study mandated by a provision of the Dodd-Frank Act, which also gives the Bureau the power to issue regulations for consumer protection if the study suggests they are necessary.
The Bureau has published a request for suggestions on how its study should be designed, what its scope should be, and what methods and sources of data should be used to make the study informative and effective. Responses are due by June 23.

FinCEN electronic filing reminder. The July 1, 2012, FinCEN deadline for mandatory e-filing of Designation of Exempt Person, Currency Transaction Report and Suspicious Activity Report forms is almost upon us. You can file the "legacy" forms electronically until March 31, 2013, by which you will have to have migrated to the new FinCEN SAR and CTR forms 111 and 112 for any discrete filing and the new data file definitions for batch filing. Between now and March 31, any combination of legacy or new reports is acceptable, if filed electronically.

Filing deadline for ongoing-activity SARs clarified. Speaking of FinCEN and SARs, Issue 21 of FinCEN’s SAR Activity Review – Trends, Tips & Issues, which focused on Money Services Businesses, included a pleasant surprise for BSA/AML officers. Tucked away in the later pages of the document is a clarification on the deadline for filing a SAR on ongoing activity. FinCEN stated "financial institutions … may file SARs for continuing activity after a 90 day review with the filing deadline being 120 days after the date of the previously related SAR filing."

More prepaid card rules expected. When the Fed added section 205.20 to Regulation E (now section 1005.20 of the Bureau’s regulation) in 2010 to implement the gift card rules mandated by the Credit CARD Act, it carved out an exception for general-purpose reloadable (GPR) prepaid cards that are not marketed as gift cards. The Bureau is now promising to bring GPR cards under many of Regulation E’s consumer protection provisions. Its initial steps include an advance notice of proposed rulemaking (ANPR) designed to collect suggestions on how to "ensure that consumers’ funds on prepaid cards are safe and that card terms and fees are transparent" and the launching of an online tool to provide answers to questions about prepaid cards. There are over 7 million active cards this year, and it’s estimated there will be $167 billion loaded on GPR cards in 2014.
Financial institutions that elected to issue GPR prepaid cards rather than gift cards in order to avoid the disclosure rules added to gift card sales beginning last year may soon find that their respite from disclosures will be short-lived. For prepaid card issuers, this is a topic that needs to stay on the radar screen.