Effective July 21, 2011, the Consumer Financial Protection Bureau (CFPB) is open for business. This new federal agency born from the Dodd-Frank Wall Street Reform and Consumer Protection Act wields substantial power to enforce various federal consumer protection laws. This centralized authority offers the opportunity for more efficient and effective responses to consumer complaints and the ability to impose tough enforcement action against offending mortgage and credit providers. As an independent bureau within the Federal Reserve System, the CFPB will work to promote fairness and transparency with regard to mortgages, credit cards, and other consumer financial products and services.
Will the CFPB regulate REALTORS®?
The CFPB primarily regulates banks, lenders, mortgage brokers, mortgage servicers, financial advisors, appraisers and credit counselors. The bureau will regulate the extension of credit, mortgage loans, appraisals, real estate closing and escrow services, and other related financial activities. It has the authority to examine, issue new rules, and file enforcement actions against banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators,) as well as payday lenders and student lenders, and other large non-bank financial companies such as debt collectors and consumer reporting agencies.
The National Association of REALTORS® secured an exemption for real estate professionals performing traditional real estate activities, except to the extent they are governed by existing laws such as the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) that now are within the bureau’s purview. In other words, REALTORS® should not assume they have a free ride, and should conform to applicable law as always! Accountants, attorneys and title companies are also outside of the CFPB’s main line of fire, but nobody should consider themselves totally in the clear.
Will the CFPB serve as a consumer resource?
The CFPB is charged with providing timely and understandable information to consumers through its new Office of Financial Literacy, eliminating deceptive practices, protecting against discrimination, eliminating outdated regulations and last, but surely not least, enforcing consumer protection laws. As such, it will become a primary resource for the REALTORS®’ clients and customers experiencing difficulties with their lenders or other credit providers. The bureau plans to watch for major violations of mortgage disclosure laws and other violations that could cause consumers to unwittingly sign up for risky loans. The CFPB also will establish a national consumer complaint hotline so consumers will have a single toll-free number to report problems with financial products and services.
What enforcement powers does the CFPB have?
The CFPB’s substantial arsenal of potential penalties and remedies should not be taken lightly. The bureau can force rescission, demand refunds, require restitution, impose damages, seek injunctive relief, require compensation for unjust enrichment, and impose civil penalties up to $5,000 per day for negligent offenses, $25,000 per day for a reckless violation, and up to $1 million for knowing or flagrant violations. It is anticipated that the CFPB will have an immediate, vigorous and public enforcement presence.
What are some of the federal laws the bureau will enforce?
With many agencies sharing responsibility, it’s hard to know who is responsible for what, and easy for emerging problems that haven’t historically fallen under anyone’s purview to fall through the cracks. The CFPB consolidates and strengthens consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation (FDIC), Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development (HUD) and the Federal Trade Commission (FTC). The one centralized office is accountable for 18 major federal consumer protection laws inherited from various federal agencies. Major laws within the province of the CFPB include:
Truth in Lending Act (TILA): Provides uniform credit term disclosures for consumers, including the amount financed, the amount of the monthly payment, the total number of monthly payments and the Annual Percentage Rate or APR. TILA sets limitations on home equity loans, regulates credit advertising and establishes rescission rights when there is a security interest in a principal dwelling within three days of consummation. From the Federal Reserve Board (Regulation Z).
Real Estate Settlement Procedures Act (RESPA): Regulates closing costs and settlement procedures, requires that consumers receive various disclosures and outlaws kickbacks that increase the cost of settlement services. Provides consumers with helpful information about the cost of the mortgage settlement and protects them from unnecessarily high settlement charges caused by abusive practices. From HUD.
Secure and Fair Enforcement Mortgage Licensing Act (SAFE Act): Sets minimum standards for the licensing and registration of state-licensed mortgage loan originators, and requires establishment of a nationwide mortgage licensing system and registry for the residential mortgage industry. From HUD.
Interstate Land Sales Full Disclosure Act: Protects consumers from fraud and abuse in the sale or lease of land. Requires land developers to register subdivisions of 100 or more non-exempt lots, and provides purchasers with a Property Report disclosure document containing relevant information about the subdivision before the signing of the sales contract. From HUD.
Equal Credit Opportunity Act (ECOA): Prohibits credit discrimination by banks, small loan and finance companies, retail and department stores, credit card companies and credit unions on the basis of race, color, religion, national origin, sex, marital status, age or receipt of public assistance. From the FTC.
Fair Credit Reporting Act (FCRA): Designed to improve the confidentiality and accuracy of credit reports, FCRA regulates the collection, dissemination and use of consumer information, including consumer credit report information. From the FTC.
Gramm-Leach-Bliley (GLB): Requires financial institutions that offer consumers financial products like loans, financial accounts or investment advice or insurance to explain their information-sharing practices and safeguard sensitive data. From the FTC.
Fair Debt Collection Practices Act (FDCPA): Regulates the conduct of collection agencies and other debt collectors seeking to collect legitimate debts, and provides protections and remedies for debtors. From the FTC.
Home Ownership and Equity Protection Act (HOEPA): Requires disclosures about consumer credit terms and costs, and addresses certain deceptive and unfair practices in home equity lending. Establishes requirements for certain loans with high rates and/or high fees. From the Federal Reserve Board (Regulation Z).
Home Mortgage Disclosure Act (HMDA): Requires lending institutions to report public loan data that can be used to determine whether financial institutions are serving the housing needs of their communities, properly distribute public-sector investments, and identify possible discriminatory lending patterns. From the Federal Financial Institutions Examination Council.
Electronic Funds Transfer Act (EFTA): Specifies protections for consumers sending or receiving funds electronically to and from the consumer’s bank account, and limits consumer liability for unauthorized transfers to $50, provided the bank is notified promptly. From the Federal Reserve’s Regulation B.
In addition, the CFPB will implement and enforce new Dodd-Frank mortgage protections which will:
- Require mortgage lenders to determine that a borrower has the ability to repay by verifying income and making sure borrowers can afford loans after teaser rates expire and payments rise.
- Prohibit prepayment penalties, which can make it expensive to refinance for high cost loans and adjustable-rate mortgages.
- Prohibit paying bonuses to mortgage brokers and loan officers who steer borrowers into higher-cost loans than they otherwise qualify for.
What other tasks will the CFPB perform?
Already underway is the Dodd-Frank directive to combine the three-page Good Faith Estimate and the two-page Truth in Lending statement into a single, easy-to-read document. Different designs are available for comment on the CFPB website at www.consumerfinance.gov/knowbeforeyouowe
The CFPB will also take over the rule-making on the Qualified Residential Mortgage (QRM). The QRM sets standards so as to avoid the risk of being considered predatory. As currently proposed in the rule, a 20 percent down payment requirement would be mandatory.
Fixing the U.S. mortgage servicing industry, amid countless accusations of inept home-foreclosure practices, will be another CFPB top priority. Recently, mortgage servicers have been alleged to have charged homeowners inaccurate fees, lost paperwork and improperly foreclosed on homeowners.
The CFPB has also entered into a partnership with the Offices of the Judge Advocate Generals to assist in better protecting U.S. servicemembers and their families from unlawful acts and practices. They will establish a single point of contact within the CFPB’s Enforcement Division that will allow members of JAG Corps to share information on consumer complaints from servicemembers and military families.
Visit the CFPB website at www.consumerfinance.gov/protecting-you and read some of the real-life stories illustrating other upcoming reforms.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.