By Joe Sanders,2014-06-29 10:03
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    JW Marriott

    Washington, DC

    September 14-16, 2009

    Hot Topics 1:

    Implementation of TILA, HOEPA, MDIA, RESPA and Other

    Pressing Requirements

    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

    A. General.

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 titlethe 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

    recorded; and

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)

    A. General.

    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

    Financial Group.

    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.

    b. Origination.

    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 creditors 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

    A. Background.

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)

    A. Overview.

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:


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