September 14-16, 2009
Hot Topics 1:
Implementation of TILA, HOEPA, MDIA, RESPA and Other
TILA and HMDA
Richard Andreano, Jr.
Truth In Lending Act
I. Recent Regulatory and Legislative Developments
A. Credit Card Accountability Responsibility and Disclosure Act of 2009, Public Law No.
111-24 (May 22, 2009) and Federal Reserve Board (Fed) July 2009 rule.
B. Helping Families Save Their Homes Act of 2009, Public Law No. 111-22 (May 20, 2009).
C. Omnibus Appropriations Act, 2009, Public Law No. 111-8 (March 11, 2009).
D. Mortgage Disclosure Improvement Act (part of the Housing and Economic Recovery Act
of 2008, Public Law No. 110-289 (July 30, 2008)) and Fed May 2009 rule.
E. Fed July 2008 Regulation Z changes (mainly effective October 2009).
F. Fed July 2009 closed-end mortgage and HELOC proposals.
II. Credit Card Accountability Responsibility and Disclosure Act of 2009,
Public Law No. 111-24 (May 22, 2009) & Fed July 2009 Rule
1. After years of effort, in January 2009 the Fed adopted a final rule revising the
Regulation Z requirements for non-mortgage open-end credit.
a. Action on mortgage-secured open-end credit was to be addressed as part
of the Fed‟s reassessment of the Regulation Z mortgage credit rules.
b. The Fed provided for a July 1, 2010 effective date.
2. Congress and the Obama Administration decided the revisions did not go far
enough and were not scheduled to be implemented soon enough. The result:
The Credit Card Accountability Responsibility and Disclosure Act of 2009, or the
short title—the Credit CARD Act of 2009.
a. The Act has three implementation dates for various requirements—
August 20, 2009, February 22, 2010 and August 22, 2010.
3. In July 2009 the Fed adopted an interim final rule effective August 20, 2009, and
requested comment on the rule.
a. The comment period ends on September 21, 2009.
4. The August 20, 2009 changes include one change that affects home equity lines
of credit (HELOCs). The periodic statement timing requirement is changed.
a. Prior Requirement. The creditor shall mail or deliver the periodic
statement at least 14 days prior to the date by which or end of the time
period within which the new balance or any portion of the new balance
must be paid to avoid additional finance charges.
b. New Requirement. Creditors must adopt reasonable procedures
designed to ensure that periodic statements are mailed or delivered at
least 21 days prior to the payment due date and the date on which any
grace period expires.
III. Helping Families Save Their Homes Act of 2009, Public Law No. 111-22
(May 20, 2009)
A. New Notice Requirement.
1. Section 404 of the Act amends the Truth in Lending Act (TILA) to provide for a
borrower notification of sale or transfer of mortgage loans secured by the
principal dwelling of a consumer.
a. The requirement became effective immediately upon the adoption of the
Act on May 20, 2009.
b. Not later than 30 days after the date on which a mortgage loan is sold or
otherwise transferred or assigned to a third party, the “creditor” that is the
new owner or assignee of the debt shall notify the borrower in writing of
the transfer, including:
i. the identity, address and telephone number of the new creditor;
ii. the date of transfer;
iii. how to reach an agent or party having authority to act on behalf of
the new creditor;
iv. the location of the place where transfer of ownership of the debt is
v. any other relevant information regarding the new creditor.
c. Note that under TILA the “creditor” generally is defined as the party to
whom the debt is initially payable. Thus, a new owner or assignee of a
debt technically is not the “creditor”.
d. Because of the quick effective date, the Fed did not have time to adopt
any formal guidance, and none exists at this time.
i. Also, the new notice requirement is not coordinated with, nor does
it even recognize the existence of, the Real Estate Settlement
Procedures Act (RESPA) servicing transfer notice requirements.
ii. It would be helpful for the Fed and the United States Department
of Housing and Urban Development (HUD) to get together and
provide coordinated guidance on the two requirements.
e. Section 404 of the Act also amends TILA as follows: “Section 130(a) of
the Truth in Lending Act (15 U.S.C. 1640(a)) is amended by inserting
„subsection (f) or (g) of section 131,‟ after „section 125,‟.”
i. Subsection (f) of Section 131 contains the existing requirement
that a servicer of a consumer obligation, upon the written request
of the obligor, provide the obligor, to the best knowledge of the
servicer, with the name, address, and telephone number of the
owner of the obligation or the master servicer of the obligation.
ii. Subsection (g) of Section 131 contains the new notice of transfer
iii. Section 130(a) sets forth the damages for violations of the general
open-end and closed-end credit requirements, including statutory
damages for violations of certain requirements.
iv. As noted above, Section 404 adds to Section 130(a) the
references to Section 131 (f) and (g) “after „section 125,‟.” In
Section 130(a) there are four references to “section 125” and
three of the references are followed by a comma. Although
clarification would be helpful, it appears the intent is to make
violations of the servicer response requirement in Subsection (f)
and the new creditor notice requirement in Subsection (g) subject
to actual damages, statutory damages, attorney‟s fees and court
IV. Omnibus Appropriations Act, 2009, Public Law No. 111-8 (March 11, 2009)
1. Section 626 of the Act directs the Federal Trade Commission (FTC) to engage in
rulemaking regarding mortgage loans, grants States additional authority to
enforce TILA, and addresses violations of regulations issued by the Fed under
the authority in TILA Section 129(l)(2).
B. FTC Rulemaking.
1. The Omnibus Appropriations Act directs the FTC to initiate a rulemaking with
respect to mortgage loans within 90 days of enactment. Any violation of a rule
adopted by the FTC under this authority shall be treated as a violation of a rule
under Section 18 of the Federal Trade Commission Act (FTC Act) (15 U.S.C. 57a)
regarding unfair or deceptive acts or practices.
2. The FTC published in the Federal Register on June 1, 2009 two advanced
notices of proposed rulemaking.
a. One notice addressed mortgage loan advertising, origination, appraisals
and servicing. The comment period ended on July 30, 2009.
b. The other notice address mortgage assistance and relief services. The
comment period ended on July 15, 2009.
3. Mortgage Loan Advertising, Origination, Appraisals and Servicing.
a. Advertising. In the advanced notice of proposed rulemaking the FTC
summarizes the Fed‟s July 2008 revisions to Regulation Z related to the
content and appearance of advertisements. While the FTC notes that the
advertising changes to Regulation Z do not become effective until
October 1, 2009, it also indicates that it has brought enforcement actions
against lenders, brokers and other advertisers of mortgage loans for
alleged violations of the FTC Act based on the theory of advertisements
being deceptive (see below). The FTC is seeking to determine the types
of advertising practices that should be considered unfair or deceptive. It
also is considering incorporating into its own rule provisions of the Fed‟s
Regulation Z revisions so that it would be able to impose civil penalties for
violations of TILA, the Home Ownership and Equity Protection Act
(HOEPA) and Regulation Z in the same manner as the federal banking
i. Three FTC enforcement actions from early 2009 likely reflect how
the FTC may proceed with regard to advertising in the rulemaking
A. In January 2009 the FTC issued complaints against three
mortgage firms regarding their advertising practices, and
decisions and orders for the matters were finalized in
February 2009. The firms are American Nationwide
Mortgage Company, Inc., Michael Gendrolis dba Good Life
Funding and Shiva Venture Group, Inc. dba Innova
B. Based on the FTC‟s allegations, it appears that
advertisements of the firms:
1. Violated certain existing TILA requirements for
2. Would violate new advertising requirements and
prohibitions of the Fed‟s July 2008 rule to become
effective on October 1, 2009.
C. Even though the new requirements and prohibitions of the
Fed‟s July 2008 rule are not effective until October 1, 2009,
this did not deter the FTC from taking the position that
advertisements of the mortgage firms were deceptive and
violated the FTC Act because the advertisements failed to
disclose, or failed to disclose adequately, additional terms
pertaining to the advertised mortgage loans.
i. In the advanced notice of proposed rulemaking the FTC
summarizes the Fed‟s July 2008 revisions to Regulation Z related
to origination restrictions and disclosure requirements for the new
category of higher-priced mortgage loans and for HOEPA loans.
The FTC advises that it has been engaged in enforcement action
against lenders alleged to have violated HOEPA provisions
prohibiting the extension of credit based on the borrower‟s
collateral and without regard to repayment ability, prepayment
penalties, balloon payments, negative amortization, increased
interest after default and payment to home improvement
contractors. Enforcement has also focused on failure to make
required HOEPA disclosures. The FTC is seeking to determine
the types of origination practices and loan features that should be
considered unfair or deceptive.
A. In February 2008 the FTC issued a complaint against six
businesses and three individuals alleging violations of
HOEPA, the FTC Act and TILA. Two of the named
individuals entered into settlement agreements with the
FTC in May 2009.
B. Based on the FTC‟s allegations, it appears that the
1. Violated certain HOEPA requirements with respect
to origination practices and loan terms.
2. Violated TILA by failing to make timely and
accurate disclosures of the amount financed, the
finance charge the APR, the payment schedule, the
total payment amount and the fact that the creditor
was taking a security interest in the consumer‟s
ii. The FTC also summarizes the disclosure requirements set forth in the
MDIA and the corresponding Fed regulations. The FTC notes that in
2007 it published a research report based on consumer testing of the
adequacy of mortgage disclosures. The study revealed that consumers
could benefit from comprehensive reform of the mortgage disclosures
provided at origination, and the FTC suggests that a single,
comprehensive disclosure of all key costs and loan terms in plain
language would be beneficial, particularly if provided early in the loan
process. The FTC is seeking to determine whether specific information
should be required on origination disclosures to prevent unfairness or
deception. It also is considering incorporating the requirements and
prohibitions on acts and practices related to mortgage disclosures set
forth in Fed‟s July 2008 revisions to Regulation Z changes into the FTC‟s
rule so that it would be able to impose civil penalties for violations of TILA,
HOEPA and Regulation Z in the same manner as the federal banking
A. Section 626 of the Omnibus Appropriations Act amends Section
129 of the TILA to add a new subsection under which, for
purposes of enforcement by the FTC, any violation of a regulation
issued by the Fed pursuant to TILA Section 129(l)(2) shall be
treated as a violation of a rule under Section 18 of the Federal
Trade Commission Act (15 U.S.C. 57a) regarding unfair or
deceptive acts or practices.
c. Appraisals. The FTC summarizes the Home Valuation Code of Conduct (HVCC)
resulting from the New York Attorney General (NYAG) settlements with Freddie
Mac, Fannie Mae and the Office of Federal Housing Enterprise Oversight
regarding appraisal practices. The HVCC includes provisions regarding: (i)
general appraiser independence safeguards, (ii) timing and cost for the borrower
to receive the appraisal, (iii) hiring of appraisers, (iv) prevention of improper
influence on appraisers, (v) establishment of the Independent Valuation
Protection Institute to take and review complaints about noncompliance with the
HVCC, and (vi) other compliance issues, such as required quality control testing,
referrals of appraiser misconduct and certification of compliance with the HVCC.
The FTC advises that while it cannot enforce the settlement agreements or the
HVCC, there are provisions in the Fed‟s July 2008 Regulation Z changes related
to appraisal issues. The FTC advises that it is considering incorporating
provisions of the NYAG‟s settlements and the HVCC into its own rule.
Additionally, the FTC is seeking information regarding potentially unfair or
deceptive acts or practices that non-bank financial companies may engage in
related to appraisals, as well as whether there is specific information that should
be disclosed to avoid unfairness or deception in a creditor‟s handling of appraisal
d. Servicing. The FTC summarizes the portions of the Fed‟s July 2008 Regulation
Z changes regarding servicing practices, as well as the servicing provisions set
forth in RESPA and Regulation X. The FTC advises that it does not have
enforcement authority for RESPA or Regulation X. The FTC has brought
enforcement actions in the past against servicers for alleged violations of the
FTC Act, the Fair Debt Collections Practices Act and Fair Credit Reporting Act.
Notable among such enforcement actions were the 2003 settlements in the U.S.
v. Fairbanks Capital Corp. case and the 2008 settlement in the FTC v. EMC
Mortgage Corp. case, the major elements of which the FTC summarizes. The
FTC uses the Fairbanks and EMC settlements as guidance for restrictions and requirements it is considering incorporating into its rule. Specifically, the FTC is
considering including in the rule that various servicing practices will be
considered unfair or deceptive with regard to servicing fees, payment processing,
loss mitigation, bankruptcy and disclosures.
4. Mortgage Assistance and Relief Services.
a. The FTC is considering whether it should issue a rule regulating loan
modification and foreclosure rescue companies. It has brought
enforcement actions against such companies and recently sent warning
letters to 71 loan modification and foreclosure rescue companies for
marketing potentially deceptive mortgage loan modification and
foreclosure assistance programs.
b. Recent FTC enforcement actions have alleged the following acts and
practices are deceptive under the FTC Act:
i. Promising a high likelihood of success and then failing to modify
the existing loan or prevent foreclosure.
ii. Promising, but failing to provide, refunds where loan modification
or foreclosure prevention efforts were not successful.
iii. Inaccurate representation that a company is affiliated with
governmental or free nonprofit programs.
iv. Charging substantial upfront fees for services the company is
unable to deliver.
v. Advising consumers who are current on their loans to stop making
mortgage payments and cease communication with their servicer
while the loan modification or foreclosure rescue company
negotiates on the consumer‟s behalf.
c. States have also initiated enforcement actions and have passed
legislation regulating the industry.
C. State Authority.
1. The Omnibus Appropriations Act authorizes a State to, as parens patraie, bring a
civil action on behalf of the residents of the State in an appropriate State or
district court of the United States to enforce the provisions of TILA Section 128
(which contains general disclosure requirements for closed-end credit), any other
provision of the TILA, or any mortgage loan rule promulgated by the FTC,
whenever the attorney general of the State has reason to believe that the
interests of the residents of the State have been or are being threatened or
adversely affected by a violation of the TILA or any such rule. The State may
seek penalties and relief provided for under the TILA or any such rule.
a. The State must notify the FTC at least 60 days before initiating such a
civil action and provide a copy of the complaint to be filed. However, if it
is not feasible for the State to provide the prior notice, the State must
provide notice immediately upon instituting the civil action.
b. The FTC may intervene in the civil action. If the FTC does intervene, it
i. Be heard on all matters arising in the civil action.
ii. Remove the civil action to the appropriate United States district
iii. File petitions for appeal of a decision in the civil action.
Note that before the Act, the TILA authorized State attorneys general to bring a
civil action to enforce a violation of Section 129, and the authorizing provision
was not amended by the Act.
D. Violations of Section 129(l)(2) Regulations.
1. Section 129(l)(2) was added to the TILA by HOEPA. The Section is addressed in
greater detail below in Section VI of this outline regarding the July 2008
Regulation Z changes adopted by the Fed.
2. As noted above, Section 626 of the Omnibus Appropriations Act amends Section
129 to add a new subsection under which, for purposes of enforcement by the
FTC, any violation of a regulation issued by the Fed pursuant to TILA Section
129(l)(2) shall be treated as a violation of a rule under Section 18 of the FTC Act
(15 U.S.C. 57a) regarding unfair or deceptive acts or practices.
V. Mortgage Disclosure Improvement Act and Fed May 2009 Rule
1. On July 30, 2008 the Fed published in the Federal Register amendments to
Regulation Z, with an effective date of October 1, 2009 for most of the changes.
Among the various changes, the amendments:
a. Expand the requirement to provide an initial TIL disclosure within three
business days of application from purchase money loans that are both
secured by primary dwellings and subject to RESPA to all loans subject to
RESPA that are secured by primary dwellings.
b. Prohibit any party from collecting a fee from the consumer before the
consumer receives the initial TIL disclosure from the creditor, with an
exception for a fee to obtain the consumer‟s credit history (provided the
fee is bona fide and reasonable in amount).
2. Also on July 30, 2008 the Mortgage Disclosure Improvement Act (MDIA) was
adopted. The MDIA is part of the Housing and Economic Recovery Act of 2008
(HERA) (Public Law No. 110-289), and was amended by the Emergency
Economic Stabilization Act of 2008 (EESA) (Public Law No. 110-343).
B. The MDIA.
1. The MDIA amends the TILA effective July 30, 2009 to:
a. Extend the initial TIL disclosure requirements to any dwelling-secured
loan that is subject RESPA.
b. Add waiting periods by requiring the that the initial TIL disclosures be
provided to the consumer at least seven business days before
consummation, and that any corrected TIL disclosures be received by the
consumer no later than three business days before consummation.
c. Require that a notice be included with the initial and corrected TIL
d. Prohibit the imposition of a fee before the consumer receives the initial
TIL disclosures, except for a fee that is bona fide and reasonable in
amount to obtain a credit report.
2. The MDIA also amends the TILA with regard to variable rate mortgage loans,
and other mortgage loans with respect to which regular payments may otherwise
be variable, to require that:
a. The payment schedule in the TIL disclosures contain the following label:
“Payment Schedule: Payments Will Vary Based on Interest Rate
b. The TIL disclosures state in conspicuous type size and format examples
of adjustments to the regular required payment on the extension of credit
based on the change in the interest rates specified by the contract for
such extension of credit.
These changes are effective the earlier of the compliance date established by the
Fed in regulations to implement the disclosure requirements or 30 months after
the enactment of the MDIA (i.e., January 30, 2011). The Fed‟s proposed
changes to the Regulation Z closed-end mortgage credit rules issued in July
2009 (and published in the August 26, 2009 Federal Register) incorporate the
additional MDIA requirements into the broader revisions contained in the
3. The MDIA amends the TILA damages provisions to:
a. Increase the minimum statutory damages of $200 and maximum statutory
damages of $2,000 for an individual action to a minimum of $400 and
maximum of $4,000.
b. Add the failure to comply with the new disclosure requirements for
variable rate loans as a violation that is subject to statutory damages.
C. The MDIA Rule.
1. The Fed proposed a rule to implement the MDIA in December 2008 and adopted
a final MDIA rule in May 2009.
2. Requirements of the MDIA and the MDIA rule are addressed below in the portion
of the outline regarding Dwelling-Secured Loans.
VI. Fed July 2008 Regulation Z Changes (Mainly Effective October 2009)
1. Background. As noted above, on July 30, 2008 the Fed published in the Federal
Register amendments to Regulation Z, with an effective date of October 1, 2009
for most of the changes. In addition to the changes to the initial TIL disclosure
requirement, which were modified by the MDIA, there were many other important
changes. For convenience, in this summary the rule is referred to as the “July
2. Dwelling-Secured Loans. For all dwelling-secured loans, the July Rule prohibits
certain advertising practices and imposes disclosure requirements for
3. Principal Dwelling-Secured Loans. For principal dwelling-secured loans, the July
a. Imposes prohibitions on coercing or influencing an appraiser. (The
prohibitions are narrower than those contained in the Home Valuation
Code of Conduct.)
b. Prohibits reliance on an appraisal that does not conform with the
appraiser coercion and influence prohibitions.
c. Prohibits with respect to servicing:
i. Failing to credit payments as of the date of receipt.
ii. Pyramiding of late charges.
iii. Failing to provide a pay-off statement within a reasonable time
after receiving a request.
d. Also, with principal dwelling-secured loans the July Rule: