What is the Dodd-Frank Consumer Protection Act? Can it help you in the foreclosure context? Too little too late?
The Dodd-Frank law was passed on July 22, 2010. The idea was to address consumer concerns with a focus on mortgage lending issues and in an effort to avoid future subprime mortgage crises (the band aids always come AFTER the chernobyl incident after everyone has made their money). The stated purpose of the act is “TO PROMOTE THE FINANCIAL STABILITY OF THE UNITED STATES BY IMPROVING ACCOUNTABILITY AND TRANSPARENCY IN THE FINANCIAL SYSTEM, TO END THE “TOO BIG TO FAIL” TO PROTECT THE AMERICAN TAXPAYER BY ENDING BAILOUTS AND TO PROTECT CONSUMERS FROM ABUSIVE FINANCIAL SERVICES PRACTICES”
Great, another reference to “transparency” – does anyone even know what that means anymore?
The following are what I see as the main highlights of the Dodd-Frank Act (Note, these are just the broad strokes – there are many, many details to this law that need to be consulted):
(1) TITLE X: The Act created the Consumer Financial Protection Bureau – “CFPB” (a self-contained until within the Federal Reserve Board). It is stated that the Federal Reserve Board will have no authority over the operating of the CFPB and should not have power to intervene into matters such as reviewing their rules or orders (we will see) but they are supposed to issue implementing guidelines by 1/21/13 (just about the time the financial crises slows down I presume). A Director will be appointed by the President – the same president Obama who bailed out the banks and cashed out the CEO’s (yipee more politics) for a fixed term of 5 years. The Federal Reserve Board will fund the CPFB in an amount determined by the Director appointed. The CFPB will have various functional units such as RESEARCH, CONSUMER AFFAIRS, and CONSUMER OUTREACH and offices that deal with EQUAL OPPORTUNITY, FINANCIAL EDUCATION, AND FINANCIAL PROTECTION OF OLDER AMERICANS.
NOTE: It will be interesting to see what, if anything they do about Robosigners, Notary Fraud, and HAMP scams just to name a few of the foreclosure issues – I am assuming there will be no call for banks to produce the note and I wonder what “financial education” we need since the banks are hardly lending any more money. NOTE: The CFPB is authorized to interpret and implement consumer financial protection laws (ex. TILA and RESPA) including the power to develop model disclosures and they will supposedly supervise companies covered by the act. The CFPB also has the broad authority to enact rules and orders, and initiate investigations (sort of like a Federal Department of Real Estate). Rulings made by the CFPB are superior and preempt “inconsistent” state laws unless the state law provides GREATER PROTECTIONS TO THE CONSUMER. Also, there is a provision that amends the National Bank Act (“NBA”) and the Home Owners Loan Act (“HOLA”) which effectively allow more preemption of state law (that normally hurts consumers when a state law gets preemption – we will be posting a separate blog on the pre-emption argument) when such a state laws is deemed to “discriminate” against federally chartered institutions (now we are worrying about banks being discriminated against?). The decision in Cuomo v. Clearing House Ass’n, LLC, 129 S. Ct. 2710 (2009) was incorporated into the Dodd Frank Act. In essence, the Cuomo case held that the OCC did not have exclusive rights to regulate the banks, that state laws could play a role in regards to fair lending practices.
It should also be noted that under the Dodd-Frank Consumer Protection Act, a majority of states have the power to commence a rule-making proceeding to adopt/change the law.
(2) TILTE XIV: Deals with Reforming the Anti-Predatory Lending Laws (which the banks could give a crap about now anyway) to add different definitions and meanings to TILA and RESPA and which allows the Federal Reserve Board (“FRB”) to adopt regulations that seek to halt unfair and deceptive loan practices (wait, i thought there were no deceptive loans, it was all the borrowers fault?). The following addressed RESPA and TILA:
(a) Truth in Lending Law (“TILA”):
(i) Adds new TILA Section 129B (provides consumers with a private right of action for improper “steering” by a mortgage originator into certain loans including loans with YSP that results in double compensation and/or compensation which varies based on the terms of the loan the consumer is placed in.
(ii) TILA 129C deals with ability to repay a loan (ex. loans that are difficult for a borrower to repay), and requires mortgage originators to (hold on to your shorts) make a “good faith” determination that a borrower has an ability to repay the loan based upon verified and documented information.
Note: the TILA section also specifically authorizes the TILA Defense of Recoupment or Set-off (for steering or ability to repay violations) to come into play regardless of the age of the TILA claim in either judicial or non-judicial foreclosure settings. There is no statute of limitations when a defense is raised in a judicial foreclosure setting, and a three year statute of limitations (starting from the date of the violation) if a Plaintiff raises an affirmative claim in civil court following initiation of a non-judicial foreclosure. There are also limits on placing “pre-payment penalties” into loans other than “qualified mortgages.”
(iii) TILA SECTION 130 - Amends the statute of limitations period for private actions from the current 1 year – to 3 years. This helps a bit. This section also protects creditors and assignees of the loan from lawsuits if the borrower is convicted of fraud in obtaining the loan. Statutory damages are raised to 4,000 plus costs and attorney fees.
Note: Other changes to TILA include (1) ARM loans must get notice of interest rate adjustments six months prior to the adjustment, and (2) New disclosures required for ARM loans that have an escrow account. (3) There are also changes to HOEPA but since there are not many of these loans, I won’t waste the time going into it. (4) Servicers must apply payments made on a consumer’s account as of the date of receipt of such payment and (5) Servicers must respond quickly to requests for payoff.
(b) Real Estate Settlement Procedures Act (“RESPA”): There are a few not worthy changes to RESPA. (1) there is a requirement for the loan servicer to promptly respond (within 10 business days) to requests to identify the holder of your loan under 15 U.S.C. 1641 et seq. (typically the banks have gone to great lengths to conceal this basic fact a borrower should be entitled to know. (2) The servicer of a federally related mortgage may not charge a fee for responding to a Qualified Written Request (“QWR”), (3) Servicer must timely correct errors pointed out to them, and (4) QWR response timeframes are reduced (5) business days to acknowledge receipt of a QWR and 30 days to correct or conduct an investigation. However, there is a provision allowing the Servicer to request an extension of 15 days.
PENALTIES FOR VIOLATING RESPA: A borrower may need to show a pattern and practice of non-compliance and if so they may recover for “each such failure” in an amount of their actual damages, and any additional damages not to exceed $2,000 and fees and costs.
(3) FEDERAL PRE-EMPTION ARGUMENT IS REDUCED: In the past, National Banks (such as Wells Fargo, Chase, Bank of America, etc.) have argued in essence that their banking activities should not be subject to scrutiny and that any state causes of action should not be considered by the judge and should be dismissed on the grounds that the cause of action is “pre-empted” by the 1864 National Banking Act. Yeah, they use a law that is over 140 years old to try to shield them from liability, and the judges for the most part have went along with it as a matter of law. The subsidiaries and affiliates of the National Banks also got to piggyback on the pre-emption argument and immunize themselves for a good deal of liability. Now, the Dodd Frank Act seeks to curtail some of that and eliminates protections for subsidiaries and affiliates of National Banks. Now, state consumer protection laws WILL NOT be pre-empted by federal laws unless the state law directly or indirectly discriminates against the national bank or significantly interferes with the exercise of banking powers. Of course, this will have to be litigated to find out the parameters of this law. Also, if another federal law expressly requires pre-emption (ex. FCRA), then the state law can still be preempted.
(4) NEW HAMP RULES: Basically there is supposed to be a NPV test posted on line so you can see if you qualify. You are also supposed to get a copy of your NPV test results if you are denied. Since I see no mandatory requirements to provide a loan modification to any borrower, I will leave the HAMP sections up to you to review.
ANYWAY, THOSE ARE THE BRAOD STROKES. IT IS ALSO NOT CLEAR WHEN THE ACT GOES INTO EFFECT BUT MANY ARGUE IT IS IN EFFECT NOW. THUS, THIS IS A LAW TO LOOK AT IF YOU ARE FACING FORECLOSURE AND NEED TO KNOW IF YOU HAVE ANY RIGHTS THAT MAY PROTECT YOU WHILE BATTLING IT OUT WITH YOUR LOAN SERVICER.
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