Monday, September 26, 2022

April 2015 Legal Briefs

  • The Bureau’s new RESPA booklet
  • More TRID rule announcements
  • A reminder on treasury ACH benefits changes
  • It’s more than mortgage lenders hours
  • Airing dirty laundry in public
  • I see dead people

The Bureau’s new RESPA booklet

By John S Burnett
The fact that lenders are going to be coping with all-new Loan Estimates and Closing Disclosures starting August 1 is apparently not enough. On March 31, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) introduced a brand new “toolkit” for consumers, one that lenders will have to start providing with the Loan Estimates for many – but not all — of the residential mortgage loan applications they process.
The new booklet, “Your home loan toolkit – A step-by-step guide,” will replace the current HUD-designed “Shopping for Your Home Loan, Settlement Costs” booklet beginning with applications for purchase-money consumer mortgages received on or after August 1, 2015.

The requirement for delivery of the new toolkit is found in Regulation Z’s section 1026.19(g), which becomes effective August 1. Specifically, the “toolkit” will have to be delivered or placed in the mail within three business days after a consumer’s application is received, when the application is for a consumer-purpose extension of credit for the purchase of a one-to-four family residential property. It need not be provided to a consumer for a credit transaction secured by real property if the purpose of the loan is not the purchase of such a property, including applications for refinancing, loans to be secured by a subordinate lien, and reverse mortgages.
If a home equity line of credit will be used in the purchase of a one-to-four family residential property, provision of a copy of the brochure “When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit,” or any successor brochure issued by the Bureau, will satisfy the requirement. [Note: That brochure is required under 1026.40 for all HELOC applications when the security is to be the consumer’s dwelling, not just for purchase-money transactions.]

As is the case with the current RESPA requirement, the booklet does not have to be provided if a loan application is withdrawn or denied within three days of its receipt.

Other loans
In the case of an application for an extension of credit to be secured by real estate that is not subject to the special disclosure requirements of Regulation Z’s section 1026.19(e), (f) and (g), or meets the criteria in section 1026.3(h) for certain interest-free down-payment assistance programs, the Regulation X (RESPA) section 1024.6 requirement for the old HUD-designed Settlement Costs booklet will apply, at least until the Bureau designs appropriate informational booklets for them. Notice that I’ve emphasized the word “and” in that statement. If the loan isn’t covered by all three of those sections, the old RESPA rule will apply.

However, even the old RESPA requirement for the Settlement Costs booklet doesn’t apply to refinancing, subordinate lien loans, reverse mortgages and other non-purchase money loans. That leaves us with this: The old booklets will need to be provided if an application for a dwelling-secured purchase-money loan is received before August.

Relationship to new disclosures
The Bureau’s new “toolkit” booklet is designed to assist consumers in understanding the new Loan Estimates and Closing Disclosures required by the TILA/RESPA Integrated Disclosures (TRID) rule. There are no illustrations of the RESPA GFE or HUD-1 form. That said, there continues to be a heavy emphasis in the toolkit on home-buying transactions and the costs involved in such transactions. At some point, the CFPB plans to produce more current booklets that will cover non-purchase transactions such as refinancings, subordinate lien loans and reverse mortgages.
Form of delivery

Regulation Z section 1026.17(a), which requires written disclosures, does not apply to the disclosures required by section 1026.19(e), (f) and (g). Instead, we have to look to those portions of 1026.19 or to the requirements of 1026.37 or 1026.38. For delivery of the toolkit, section 1026.19(g) makes no mention of the words “writing” or “written.” However, the requirement that it be “delivered or placed in the mail” strongly suggests that a printed format should be used.

The Bureau is providing the toolkit in both printed and electronic form. The electronic format is actually an interactive PDF document, and the CFPB’s press release encourages lenders to make the toolkit available on their websites in that format to allow consumers to save it and print their progress as they work through the booklet.
Here’s what we suggest: Unless the Bureau further clarifies section 1026.19(g) to specifically allow electronic delivery of the toolkit when it must be provided, you should provide it in printed form for purchase-money applications. Do so with or before your delivery of the Loan Estimate, by the third business day after receiving the application. Also make the PDF version available for download from your website, and encourage applicants and other interested consumers to use that version. Lenders who have obtained demonstrable consent under the E-SIGN Act for electronic delivery of these disclosures can, of course, send both the toolkit PDF and the Loan Estimate (and other disclosures) via email or other electronic method.

When to start
You’ll have to start providing the new toolkit to any applicant whose application for a consumer-purpose loan to purchase a one-to-four family residential property is received on or after August 1, 2015. You can optionally provide it to applicants to whom you will provide the new Loan Estimate, and to other consumers who want to know more about real estate mortgage transactions.

But don’t wait until August 1 to download the toolkit. Get it now, and have members of your staff try it out. You really need to know what the toolkit will be telling your borrowers about the mortgage lending process.

More TRID Rule announcements

By John S Burnett
Updates to exam manual
On a related note, on April 1 the Bureau posted two updates to the FFIEC-approved Supervision and Examination Manual, bringing current the exam procedures for Regulation X (RESPA) and Regulation Z (TILA), including the TRID rule. You can find the updates on the CFPB website, on the “Law & Regulation” drop-down menu item for the Examination Manual. All of the updates to the October 1, 2012, full manual are listed in reverse chronological order.

Revised implementation materials
The CFPB has also updated key materials designed to assist the industry in their implementation of the TRID rules. If you haven’t already done so, go to the Bureau’s Regulatory Implementation page for the TILA-RESPA Integrated Disclosure Rule to download the most recent version of each of these documents:

• Compliance guide
• Guide to forms
• Disclosure timeline

And while you’re on the Bureau’s site getting updates, check over on the Regulatory Implementation page for the Title XIV Rules to find a March update to the Compliance Guide for the Loan Originator Rule.

A reminder on Treasury ACH benefits changes

By John S Burnett
Beginning April 13, your operations staff can expect to see some changes to the ACH data fields associated with Office of Personnel Management (OPM) direct deposit of benefit payments. The techies on your staff will want to know that data in the ACH Company/Batch Header (“5”) record will change. The Company Name will change from ‘US TREASURY 312’ to ‘OPM1 TREAS 310’ and the Company Identification will change from ‘3121736143’ to ‘19121736143” or from ‘3121736156’ to ‘19121736156.’

The Company Entry Description will remain unchanged as ‘XXCIV SERV.’

It’s more than Mortgage Lenders Hours

By Andy Zavoina
In early March, the Supreme Court of the United States ruled on a case that has been going on for years. At first blush you may have seen a story title that included “mortgage lenders” and it caught your eye. Then you started to read the ruling and lost interest because it’s all about the procedures the Department of Labor (DOL) follows under the Administrative Procedures Act (APA). Pretty dry and uninteresting stuff. But please don’t stop here. This ruling is important to you.

Perez, Secretary of Labor, et al. v. Mortgage Bankers Association et al is the case in question. Here is a bit of background:

In 1999 and 2001, the U.S. Department of Labor (DOL) issued opinion letters that mortgage loan officers were subject to the Fair Labor Standards Act (FLSA). Revisions were made to FLSA, and the Mortgage Bankers Association requested an interpretation of in 2004 of these revisions. In 2006, the Department issued a new opinion letter that mortgage loan officers fell within the administrative exemption under the revisions. Without notice or an opportunity to comment, the 2006 opinion letter was withdrawn, and on March 24, 2010, Administrator’s Interpretation No. 2010-1 was issued stating that mortgage loan officers did not meet the administrative exemption and are subject to FLSA’s hourly wage and overtime provisions. The Mortgage Bankers Association and others brought suit in the U.S. District Court for the District of Columbia claiming that the DOL Administrative Interpretation was invalid because it violated the Administrative Procedures Act’s notice-and-comment provisions. DOL won in the district court but the U.S. Court of Appeals for the D.C. Circuit reversed the decision. On March 9, 2015, the U.S. Supreme Court reversed the Circuit court and held that the Administrative Procedures Act did not apply meaning that DOL’s Administrator’s Interpretation No. 2010-1 is valid and mortgage loan officers are covered by FLSA (unless they are exempt as a bona fide executive.

The Administrative exemption from FLSA applies if all of the following are met:

1. The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
2. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
3. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Administrative Interpretation 2010-1 focused on the application of the second test to the typical jobs duties of a mortgage loan officer: Whether the primary duty of employees who perform the typical job duties of a mortgage loan officer is office or non-manual work directly related to the management or general business operations of their employer or their employer’s customers. To be exempt, a mortgage loan officer’s primary duty must be “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” In order for the work to be directly related to the management or general business operations of the employer, the work must be “directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” Work directly related to management or general business operations of an employer includes work in functional areas such as accounting, budgeting, quality control, purchasing, advertising, research, human resources, labor relations, and similar areas. The administrative exemption is “limited to those employees whose primary duty relates ‘to the administrative as distinguished from the production operations of a business.” 69 Fed. Reg. 22122, 22141 (April 23, 2004), quoting the 1949 Weiss Report.

The 2010 Administrative Interpretation includes several citations of court decisions and states: “Indeed, the Administrator is not aware of any court that has found that mortgage loan officers – working either inside or outside – have a primary duty other than sales. [A] careful examination of the law as applied to the mortgage loan officers’ duties demonstrates that their primary duty is making sales and, therefore, mortgage loan officers perform the production work of their employers.

Keep in mind that a few of your mortgage loan officers may meet the executive exemption if all of the following tests are met:
1. The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;
2. The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
3. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
4. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

With regard to the second requirement, “Primary duty” means the principal, main, major or most important duty that the employee performs. “Mmanagement” includes, but is not limited to, activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

You should also be aware that highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive identified above.

Reviewing the tests for the administrative and executive exemptions, how many positions in the bank may be classified as exempt that will not qualify? The impact to your bank can cause a giant impact on the bottom line. Because Compliance interfaces with all the departments in the bank at one time or another, you may be directly or indirectly involved with this. All banks should be reviewing the exempt/nonexempt status of the employee job descriptions and comparing these to what the employee actually does. The penalties for wrongly classifying a position as exempt include fines up to $1,000 per violation, criminal penalties including up to $10,000 in fines, back pay, liquidated damages, attorney’s fees and court costs.
In addition to misclassification of employees as exempt other common FLSA violations include: inaccurate record keeping for FLSA covered employees (How has the bank kept track of hours worked by mortgage loan officers and other non-exempt employees? And the biggie, based on the past work record and the future, recognizing that mortgage loans will be more cumbersome and take more time because of Dodd-Frank, how will you quantify the increase in personnel expense?); improper payment/no payment for on-call time, training time, and travel time; and inappropriately providing compensatory time off. The penalties for failing to pay minimum wages or overtime include back pay, equal amount of liquidated damages, $1,000 fine per violation, and attorney’s fees and court costs.

Note that generally a two-year statute of limitations applies to the recovery of back pay. In the case of willful violations, a three-year statute of limitations applies.

Airing Dirty Laundry in Public

By Andy Zavoina
On March 19, 2015 the Consumer Financial Protection Bureau (CFPB) finalized the policy it will use which gives consumers more of a voice when it comes to having their complaints heard. According to the CFPB this “empowers” consumers. Consider that the CFPB started taking complaints almost as long ago as it opened its doors. It was taking different categories of complaints and has added to those categories as it improved its infrastructure and capabilities. It has accepted more than 558,000 complaints as of March 1 of this year. Also consider it regulates, and takes complaints, on about 110 of the 14,000 financial institutions. It oversees those institutions over $10 billion in assets.

In simple terms, a consumer can complete an online complaint form at the CFPB site. The consumer identifies themselves, who the complaint is against, and when the problem happened. They complete a text box to describe what occurred and can attach supporting documents. The CFPB forwards the complaint to the bank for response, and with a tracking number the consumer can see the follow-up as the complaint progresses and is responded to.

Now the consumer has an opt-in box and can provide a narrative as to what happened. The consumer has the option to withdraw the opt-in later. This is intended to provide context for the complaint. These won’t be published for the first 90 days of the revised procedure so that banks and others being complained about can adjust to the new system. So the consumer opt-in, the CFPB will extract personal information for the consumer’s privacy, and the bank (or other company) can decide if it wants to have its response published as well. Those which do under this revised process, “will be given the option to select from a set list of structured response options as a public-facing response to address the consumer complaints. Companies will be under no obligation to offer a public response, and they have 180 days after the consumer complaint is routed to them to select the optional, public response.”

We don’t know if other agencies will adopt similar procedures later. There are other government agencies that accept complaints and make that information available.

The Consumer Product Safety Commission which in part was a framework for the CFPB, has a detailed verification process and allows companies an opportunity to appeal what it claims are inaccurate complaints. I am reminded of a director at a former bank I worked at who complained that he waited over 30 minutes to see a commercial teller in our bank. The video revealed he waited 7 minutes. This appeals process allows the real complaints to be published and to be used as others determine if this is a bank they want to do business with. The angry and inflated rants are removed from the list revealing a more accurate picture. The Department of Transportation provides airline ranking based on complaints per 100,000 passengers and uses the airlines size to put these into the proper context and a single complaint is then not taken out of proportion. The FTC has a Consumer Sentinel Network where consumers can complain about identity theft, the do not call list, telemarketing scams and more. These complaints go into a database so law enforcement can access it, similar to a bank’s SAR filings. Here the complaints are not open to the public.

Consider when you shop for an app for your smartphone, when you look to make a purchase on Amazon or when you look for a rating on the Better Business Bureau’s list – ratings make a difference. When there is one outstanding review and four that claim deceptive practices, you have doubts about making that purchase. But who really provided those ratings and how many customers are being served? If the negative reviews are (all or in part) from a competitor would that change your opinion? If the product or service was used by many, many thousands of people and there were only a handful of reviews, would that change your opinion? My point is obviously that the new procedure may be misleading more than helpful and the responses “allowed” from those the complaints are against may or may not be helpful. In any case if they are standard with little room for rebuttal they may be deemed “rhetoric” and not helpful by a reader.

At the end of the day we know more people will complain than praise a bank for the products and services it provides. Complaints read on the CFPB’s site will have more credibility than those on a blog or Facebook. Banks know this and for that reason need to stay ahead of the power curve when it comes to resolving complaints before they reach any regulatory agency or credible entity that may publish them. This is a good time to determine in your bank, who receives complaints, records them, resolves them and reviews what has happened to pick up on trends that may need to be addressed. Whether you are a large bank or a small one, you want your customers to be happy and will strive to make that happen. Your examiners will ask these same questions as it is recognized now that complaints lead to enforcement actions and even new and revised regulatory requirements. Having a sound system in place will pay dividends in the future.

I See Dead People

By Mary Beth Guard
Okay, I don’t really see dead people, but I do see a lot of questions relating to deceased individuals, so this month I wanted to write about some of the more common ones.

Your deposit account customer dies. What happens next will depend on how his deposit account was structured.

If the account was held in joint tenancy with right of survivorship, Section 901 of the Banking Code and your deposit account agreement provide for the funds, including any interest, to become the property of the survivor(s). If the survivor was listed first on the account title, it’s your lucky day because that means you won’t have to change what you’ve been using as the TIN on the account. You can continue to use the survivor’s SSN. If it is not an interest-bearing account, the TIN is not required by IRS, so regardless of whether the survivor’s name was first or not, no big deal because you don’t have an interest reporting issue. Think of death as being like the ultimate magic trick, however, in the sense that once the individual dies, his account ownership rights vanish. Allowing a check made payable to the dead person (or a direct deposit) to be placed into what used to be a joint account owned in part by the deceased individual is as impermissible as taking a check made payable to John Doe and allowing it to be deposited into Sally Smith’s account. Without John signing it over to Sally (and in our dead customer scenario, the dead guy can’t sign), it’s conversion, plain and simple.

Post mortem deposits of checks payable to the decedent into a formerly joint account are not legally permissible. Joint tenancy accounts require live owners. Once one of them is muerto, the contract terms kill off the dead person’s ownership interest in the account and pass it to the survivor(s).

I have a couple of cranky friends in their 80s who have been married for a few years now. It is the second marriage for each. He has three kids from his first marriage; she has four kids from her first marriage. I’ve always admired the way they eat right, exercise, take their vitamins, but recently I discovered through separate conversations that they do it because each of them is determined to outlive the other, viewing the joint tenancy accounts as the ultimate prize in a winner takes all game that is being played to the death. If she outlasts him, she and her kids will ultimately benefit. If he manages to hang on longer, he gets the accounts when she dies, and it’s not likely her kids will see any inheritance down the road flowing through his estate to them.

Keep this couple in mind when you’re examining a practice I have been horrified to discover some Oklahoma banks engaging in of keeping a dead person’s name on a joint account in order to keep accepting deposits payable to the deceased individual into the joint account. The surviving joint tenant gets what is in the account as of the date of death. That is the limit of the survival “prize” under the contract. After the death of one owner, it’s like a legal “Do Not Enter” sign is erected to stop any new deposits of the deceased person from coming in through the joint account door.

What about post mortem payments of checks written by the person prior to death? If you don’t know the customer is deceased, and you keep paying the checks he wrote before he sailed into the great beyond, UCC 4-405 protects you. Once you are aware of the death, you have authority to keep paying the pre-death checks for ten days after the date of death unless you are ordered to stop payment by a person claiming an interest in the account (such as by a surviving joint tenant or, presumably, by a payable on death beneficiary). You don’t have to pay the items, however. You can return them “drawer deceased” instead. If you do decide to pay them, be cautious, particularly if the payees or the amounts do not seem consistent with what you know about the deceased customer. The jackals come out before the body gets cold, and sometimes they’re holding pens and looking for checkbooks.

In 1991, the OBA secured passage of Section 906 of the State Banking Code to finally provide a method for a small amount of funds to be released from a sole ownership account. Over the years, the statute has been amended four times to tweak it, but the basics remain the same: 1) it only applies to single ownership accounts on which there is no payable on death beneficiary designation; 2) the deceased individual must have been a resident of Oklahoma; 3) the decedent cannot have left a will; 4) all known heirs of the decedent must sign and submit an affidavit swearing to the fact that the person was a resident of Oklahoma, he is now deceased, he left no will, and that they are the sole and only heirs of the deceased person. If all those requirements are met, then the only element left is amount. In order to use this procedure, the statute now says that the amount of the aggregate deposits held in single ownership accounts in the name of the deceased individual must be $20,000 or less.

We have written about Section 906 before, but we continue to regularly receive two questions, I want to clear up: Question 1: Our deceased customer had more than $20,000 in sole ownership accounts. Is it okay if we just release the first $20,000 to the heirs, assuming the other conditions are met? Answer: No. If there is more than $20,000, this statutory procedure is inapplicable. Question 2: What if we received additional deposits payable to the deceased individual after the death, such as direct deposits or royalty checks or whatever? Can those funds go to the heirs, too, under the Section 906 procedure, so long as the total amount does not exceed $20,000?

Answer: Nope. It’s like a snapshot in time of the account balance as of the date of death. After-acquired funds can’t be passed under this procedure.