- The National Low Income Housing Coalition (NLIHC) releases report on differences between the National Housing Trust Fund (NHTF) and HOME Investment Partnerships Program. It found that the NHTF is more targeted to low-income renter households than HOME.
- The US Department of the Treasury’s Community Development Financial Institutions Fund (CDFI) evaluated New Markets Tax Credit (NMTC), which “enables economically distressed communities to leverage private investment capital by providing investors with a federal tax credit.”
- The Center for Housing Policy at the National Housing Conference released report, Affordable Housing’s Place in Medicaid Reform: Opportunities Created by the Affordable Care Act and Medicaid Reform.
- The Center for Housing Policy and Children’s HealthWatch released report, The Timing and Duration Effects of Homelessness on Children’s Health.
- The Offices of the Inspector General released report, Coordination of Responsibilities Among the Consumer Financial Protection Bureau and the Prudential Regulators—Limited Scope Review.
- HUD released a report making changes to the Rental Assistance Demonstration (RAD).
Tag Archives: CFPB
The Quest for Consumer Comprehension
Lauren Willis has posted The Consumer Financial Protection Bureau and the Quest for Consumer Comprehension to SSRN. it opens,
Dodd-Frank tasked the Consumer Financial Protection Bureau with ensuring that “consumers … understand the costs, benefits, and risks associated with” financial products. Despite this ambitious mandate, and despite the Bureau’s self-branding as a “21st century agency,” the Bureau’s pursuit of consumer comprehension has thus far focused on the same twentieth century tool that has already proven ineffective at regulating financial products: required disclosures. No matter how well the Bureau’s “Know Before You Owe” disclosures perform in the lab, or even in field trials, firms will run circles around disclosures when the experiments end, confusing consumers and defying consumers’ expectations. Even without any intent to deceive, firms not only will but must leverage consumer confusion to compete with other firms that do so. While firms are not always responsible for their customers’ confusion, firms take advantage of this confusion to sell products.
If the Bureau wants to ensure that consumers understand the financial transactions in which they engage, then to meet the challenge posed by the velocity of today’s marketplace, the Bureau must induce firms themselves to promote consumer comprehension, either by educating consumers or by simplifying products. To generate this change in firm behavior, the Bureau should require firms to regularly demonstrate, through third-party testing of random samples of their customers, that their customers understand key costs, benefits, and risks of the products they have bought. Rather than attempting to perfect the format of price disclosures, for example, the Bureau should require firms to prove that their customers understand the price at the moment when the customers are deciding whether to take the actions that will trigger it, whether those actions be taking out a mortgage, overdrawing a checking account, or calling customer service to inquire about the balance on a prepaid debit card. Where consumers are confused about benefits rather than costs, such as the benefit of signing up for a credit repair service, buying credit life insurance, or paying off a debt that is beyond limitations, firms should be required to show that their customers understand the actual benefits the firm is offering before the consumer commits to the purchase or action. (1, footnotes omitted)
This paper poses an important challenge to the CFPB — can disclosure regimes be replaced with something better? One hopes that the answer is yes, although Willis’ previous work on financial education makes me somewhat pessimistic.
This new paper does offer some reason for optimism though. Willis argues that comprehension rules may induce firms to simplify products, so such rules may have a positive impact even if the CFPB cannot move the dial on consumer comprehension all that much.
Monday’s Adjudication Roundup
- The CFPB increased PHH Corp.’s penalty to $109 million from $6.4 million on appeal, while upholding an administrative judge’s ruling that the firm was involved in a mortgage insurance kickback scheme.
- A class of PHH borrowers have been granted cert to the U.S. Supreme Court alleging that PHH Corp. violated the Real Estate Settlement Procedures Act.
- NY Court of Appeals bars mortgage-backed securities suit for $330 million against Deutsche Bank AG due to a six-year statute of limitations that started when the contract was signed.
- Nomura Holdings Inc. is appealing $806 million verdict in suit brought by the Federal Housing Finance Agency for selling bad mortgage-backed securities to Fannie Mae and Freddie Mac.
- The Securities and Exchange Commission brought suit against a New York broker for $4.1 million for allegedly selling unregistered securities through several entities.
Reiss on Big Kickback Penalty
Law360 quoted me in CFPB Ruling Adds New Front In Administrative Law Fight (behind a paywall). The story opens,
Consumer Financial Protection Bureau Director Richard Cordray’s decision last week upholding an administrative ruling against PHH Mortgage Corp. and jacking up the firm’s penalty highlights concerns industry has about the bureau’s appeals process, and it adds to a growing battle over federal agencies’ administrative proceedings.
Cordray’s June 4 decision in the PHH case marked the first time the bureau’s administrative appeals process was put to the test. And the result highlighted both the power that Cordray has as sole adjudicator in such an appeal and his willingness to review a decision independently and go against his enforcement team, at least in part, experts say.
But because PHH has already vowed to appeal the decision, the structure of the CFPB’s appeals process could be put in play, and it could be forced to change — a battle that comes as the U.S. Securities and Exchange Commission is also facing challenges to its administrative proceedings.
The way the CFPB handles administrative appeals “might be one of the issues that the court of appeals might be asked to consider,” said Benjamin Diehl, special counsel at Stroock & Stroock & Lavan LLP.
In the case before Cordray, PHH had been seeking to overturn an administrative law judge’s November 2014 decision that found it had engaged in a mortgage insurance kickback scheme under the Real Estate Settlement Procedures Act, or RESPA.
Cordray agreed with the underlying decision, but he found that Administrative Law Judge Cameron Elliot incorrectly applied the law’s provisions when assessing the penalty PHH should face.
And when Cordray applied those provisions in a way that he found to be correct, PHH’s penalty soared from around $6.4 million to $109 million, according to the ruling.
The reasoning behind Cordray’s decision irked lenders, which say the CFPB director dismissed precedent on mortgage reinsurance, including policies from the U.S. Department of Housing and Urban Development and judicial interpretations of the statute of limitations on RESPA claims.
“If the rules are going to change because an agency can wave a magic wand and change them, that’s disconcerting,” Foley & Lardner LLP partner Jay N. Varon said.
The rise in penalties highlighted both the risk that firms face in an appeal before the CFPB and Cordray’s desire to send a message to companies that he believes violate the law, said David Reiss, a professor at Brooklyn Law School.
“It is unsurprising that Cordray would take a position that is intended to have a significant deterrent effect on those who violate RESPA, and I expect that he wanted to signal as much in this, his first decision in an appeal of an administrative enforcement proceeding,” Reiss said.
Dealing with Debt Collectors
I was quoted by CreditCardGuide.com in Know Your Rights with Debt Collectors. It reads, in part,
Regardless of how deep your financial troubles go, you are protected by state and federal law when it comes to how debt collectors can treat you.
First off, you should understand who the people are behind the debt collection notices and phone calls. “A debt collector is defined as someone who is not the original creditor,” explains David Reiss, professor of law and research director of the Center for Urban Business Entrepreneurship at Brooklyn Law School, who also writes the REFinBlog. And, he says, what might start out as a legitimate debt collector contacting you on behalf of a creditor, can change over time since debt collection companies often sell their lists to other companies. Unfortunately, your contact information might end up with a fly-by-night operation that resorts to shady practices, such as trying to frighten you with threats and bullying.
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Consider this your peek into the debt collection rulebook so that you can arm yourself against abusive tactics:
What debt collectors cannot do
- Call you under a false identity. “That means they cannot say they are an attorney if they are not, or say they are from the sheriff’s office if they are not,” says Reiss.
- Discuss your debt with your employer, family members (other than your spouse), neighbors or publish your name on a list of people who owe money. “They can call a third party and leave a message for you, but they can’t disclose the details of your debt,” says Tayne. Generally, they can only discuss your debt with you, your spouse and your attorney.
- Call you at ridiculous hours, such as before 8 a.m. or past 9 p.m. They also cannot call you repeatedly in a single day.
- Be abusive, threatening or vulgar. In other words, says Tayne, they cannot bully you by calling you a deadbeat or loser for not making payments, and they should never curse at you.
- Make false threats that they will seize your property, drain your bank accounts or arrest you, says Reiss.
What debt collectors can do
- Contact you in person, by mail, by phone or by fax between the hours of 8 a.m. and 9 p.m. However, they can’t contact you at work if they are told you can’t get calls there. Also, if you write to them to stop calling you, they must comply, although they might respond by suing you, so think carefully before sending that letter.
- Sue you in court. If they do, you’ll have to appear, and it’s in your best interest to hire an attorney. Ideally, you want to work something out before getting to this stage, says Reiss, because court and attorney costs can pile up.
- Report you to the credit agencies. “Debt collectors can report your default to the credit bureaus,” says Reiss. This negative item will remain on your report for seven years, and your credit score will take a hit.
What you can do
If you think debt collectors are crossing the line, you do have options for recourse, says Reiss. “First, build up a paper record as this can help you later on.” That includes taking notes on every conversation you have, with dates, times and who you spoke to.
You could also try sending a cease-and-desist letter, or asking a lawyer to do so on your behalf, says Reiss. “They may be afraid and back off if a lawyer is involved,” he says.
Tayne finds that such letters aren’t always effective for more hostile debt collectors. “If they’re really out of line, file a lawsuit in small claims court,” she says.
You should also report shady collectors to your state attorney general’s office as well as the Consumer Financial Protection Bureau, say Reiss and Tayne.
If you do end up making a payment to a debt collector, request documentation that states your debt is paid, and then be sure that the payment is reflected on your credit reports within 90 days. You can get your credit reports for free at AnnualCreditReport.com.
Ideally, you don’t ever want to be in a situation in which debt collectors are tasked with contacting you, and incentivized to do whatever it takes to get you to pay them. But if you do end up in that situation, knowing your rights is your best defense. Says Reiss, “Debt collectors do not want consumers to invoke their rights under the FDCPA because the act can severely limit what they can do.”
Costly Mortgage Mistakes
Consumer Reports Money Adviser quoted me in Don’t Make This Costly Mortgage Mistake; How to Weigh Your Options Before Your Settle on a Deal (only available in Spanish without a subscription!) (UPDATE: NOW IN ENGLISH TOO). It reads, in part (and in English),
As with anything you buy, scoring the best deal on a mortgage or refinancing involves shopping around. Yet 77 percent of borrowers applied for a loan with a single lender instead of checking out several to compare costs, according to a recent study by the Consumer Financial Protection Bureau. “People may well put more time and effort into shopping for smaller products such as appliances and televisions than they do in shopping for the right mortgage,” the bureau’s director, Richard Cordray, said in a statement. But the potential savings from doing your homework are significant. If you get a $250,000 30-year fixed-rate mortgage at 4 percent interest from a lender instead of paying 4.5 to another, you’ll save $26,345 over the life of the loan.
We know it can be difficult to find the right mortgage; the process can be intimidating. Following these steps will help you navigate better:
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2. Decide which type of mortgage is right for you
Before you shop, determine how much you want to borrow, which type of mortgage you want, and how long a term you need so that you can compare lenders’ products.
Most borrowers go with a fixed-rate mortgage, usually for a 30-year term, to spread out the cost of a home purchase over time while making predictable payments each month, says David Reiss, a professor who teaches real-estate finance law at Brooklyn Law School. Those loans make sense especially when rates are low and for buyers who intend to own their house for a long time.
But also consider an adjustable-rate mortgage (ARM), also called a variable-rate or floating-rate mortgage), Reiss says. It has an interest rate that’s fixed for an introductory period of time, then changes periodically, usually in relation to an index. The introductory rate is often lower than the rate on fixed-rate mortgages. For example, the average 30-year fixed-rate mortgage recently had an annual percentage rate (APR) of 3.5 percent, according to Bankrate.com; the average 5/1 ARM (which adjusts annually after five years) was 2.67 percent.
When the rate adjusts, it can sometimes result in a sizable increase in monthly mortgage payments. “ARMs are appropriate for people who anticipate relocating or paying off the loan before it adjusts,” Reiss says, “or for empty nesters who don’t plan to stay in a home for many years.”
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4. Push for a better deal
After you have found the best offer, try to negotiate even better terms. Ask the lender whether he will waive or reduce any of the fees he is charging or offer you an even lower interest rate (or fewer points). You are unlikely to get fees waived from third parties, like those for a title search, government processing fees, and appraiser fees, Reiss says. “But you may be able to cut the lender’s fees, like its underwriting, document processing, and document preparation costs,” he says.
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Monday’s Adjudication Roundup
- The United States Supreme Court holds that debtors do not have an absolute right to appeal a denial of a proposed bankruptcy plan (mentioned in April 6 post).
- Maryland federal judge approves settlement between CFPB and Genuine Title and participants for illegal mortgage-kickback scheme (mentioned in May 4 post).
- CFPB settles with Florida law firm for nearly $12 million for collecting over $5 million in illegal fees. The firm enlisted homeowners to bring “mass-joinder” suits against mortgage lenders.
- Lead plaintiff in class action against Bank of America asks the Third Circuit to rehear case alleging violations of Fair Debt Collection Practices Act decided last month. The Third Circuit held that the FDCPA covers foreclosure complaints (mentioned in April 13 post).
- The Clearing House Association LLC, the American Bankers Association, the Financial Services Roundtable and the U.S. Chamber of Commerce support Bank of America in its Second Circuit appeal of $1.3 billion fine for allegedly defrauding Fannie Mae and Freddie Mac through its mortgage program, “Hustle.”
- In stipulation, Massachusetts Federal District Court voluntarily dismisses claims against JPMorgan Chase & Co. and other institutions in $5.9 billion MBS suit brought by Bank of Boston.
