What to Make of the CFPB’s Enforcement Activity under Director Kraninger; Bradley to Hold March 26 Webinar

By Jonathan R. Kolodziej and D. Brian O'Dell on Posted in CFPB, Compliance

What to Make of the CFPB’s Enforcement Activity under Director Kraninger; Bradley to Hold March 26 WebinarSince Kathleen Kraninger was confirmed as the Director of the Consumer Financial Protection Bureau (CFPB) on December 6, 2018, six enforcement actions have been publicly resolved. Those cases have involved various types of defendants, and have covered a broad range of conduct that allegedly violated federal consumer financial law. Individuals, a federally chartered savings association, an online lender, offshore and domestic payday lenders, and a jewelry retailer have all been subject to the CFPB’s enforcement powers under Director Kraninger.

In contrast, the CFPB only finalized 10 enforcement actions during the 13-month period that Acting Director Mick Mulvaney was at the helm of the Bureau. For purposes of our analysis, we categorize the CFPB’s consent order that was filed on December 6, 2018—the same day Director Kraninger was confirmed—as one that was finalized and signed off on under Acting Director Mulvaney’s tenure. We do acknowledge that Director Kraninger has only been in her role for a short period of time thus far, and much of the behind-the-scenes enforcement activity likely occurred prior to her arrival at the CFPB. However, Director Kraninger has been the final sign-off for the six cases resolved after her confirmation and reviewing the enforcement activity during her short tenure may provide a glimpse into future trends and philosophies.

When reviewing and comparing the enforcement activity under Acting Director Mulvaney and Director Kraninger, a few takeaways emerge:

  • The CFPB appears to be resolving cases far more frequently under Director Kraninger than under Acting Director Mulvaney;
  • One case involved a parallel investigation and settlement with the State of New York;
  • The Bureau under Director Kraninger has imposed a total of $16.8 million in civil money penalties;
  • Director Kraninger has shown a willingness to impose more severe civil money penalties than Acting Director Mulvaney;
  • All cases finalized under Direct Kraninger have relied on the CFPB’s UDAAP authority; and
  • The CFPB under Director Kraninger demonstrated a rare willingness to impose a civil money penalty based on a defendant’s inability to pay more.

Upcoming Webinar

Webinar, Computer, Notepad, Pen, Glasses, PhoneIf this is an area you would like to learn more about, we encourage you to join us for our “Enforcement Update” webinar, which is scheduled for Tuesday, March 26 from 11:30 a.m. to 12:30 p.m. CT. This webinar will focus on the enforcement activity during Director Kraninger’s time at the CFPB and will discuss our takeaways in depth. Click here to RSVP to the webinar. Webinar login information will be provided one day prior to the event.

This will be the second webinar in our Payment Systems Webinar Series, which will cover hot topics and common pitfalls for entities navigating the compliance challenges of this dynamic industry — from traditional products (e.g., credit cards, debit cards, prepaid cards, gift cards, Automated Clearing House transactions, rewards programs) to emerging technologies (e.g., mobile payments, mobile wallets, cryptocurrencies).

HUD Demonstrates Continued Commitment to Aggressive Enforcement of the Fair Housing Act

By Christopher K. Friedman and Heather Howell Wright on Posted in Fair Housing, Federal Agencies, HUD

Fifty years after the passage of the Fair Housing Act, the United States Department of Housing and Urban Development (HUD) continues to demonstrate a strong commitment to Fair Housing, both through the support of private enforcement and through its own public enforcement. HUD recently announced that 80 non-profit organizations committed to fair housing will receive almost $23 million in federal funds through HUD’s Private Enforcement Initiative. According to HUD Secretary Ben Carson, these grants represent an “investment to support [HUD’s] fair housing partners and protect families from discrimination” by providing money to engage in testing and private enforcement of the act.

HUD also continues aggressive public enforcement of the Fair Housing Act. For instance, HUD recently filed a housing discrimination charge against a New Jersey condominium association for allegedly refusing to grant a request for reasonable accommodations in violation of the Fair Housing Act. The complaint is based, in part, on a condominium association’s adverse action against a resident regarding a service animal. Specifically, in 2013 the complainant, on behalf of herself and her disabled mother, filed a complaint with HUD after Hudson Harbor Condominium Association, Inc. fined the complainant $100 for walking her mother’s service dog in a common area.

HUD Demonstrates Continued Commitment to Aggressive Enforcement of the Fair Housing ActIn 2012, Hudson Harbor waived the association’s “no pet” policy for the complainant’s mother, who relied on a 75-pound beagle, Australian sheepdog, and terrier mix to assist her in walking, alert her to individuals at her door, and for emotional support. At the time of the waiver, Hudson Harbor told the complainant’s mother that she would need to comply with rules applying to pets that were “grandfathered” in before the association banned them in 2009. This policy required all pets to be kept in crates or carriers while in common areas.

The complainant’s daughter ignored the rule and walked the dog in the condominium’s common areas, which prompted a letter by Hudson Harbor demanding that the dog be carried in a crate. Hudson Harbor also warned that each violation would incur a fine. As a result of this letter, the complainant and her mother began entering and exiting the building through a service door that resulted in a longer walk and allegedly exacerbated the complainant’s mother’s health problems.

The complainant’s lawyer contacted Hudson Harbor and explained that her mother’s condition prohibited her from carrying the dog in a crate. Hudson Harbor denied the request for an accommodation because the complainant, who was not apparently disabled, “is the only person that has been observed walking the dog.” The complainant had primary responsibility for walking her mother’s dog, so she continued to violate Hudson Harbor’s rule. As a result, in October 2013, Hudson Harbor fined her $100. Shortly thereafter, the complainant filed a verified complaint with HUD, which ultimately led to HUD’s housing discrimination charge.

This complaint, as well as the approximately $23 million in grant money that HUD is giving to fair housing organizations, is a reminder that HUD remains committed to aggressive enforcement of the Fair Housing Act. Additionally, HUD continues to interpret the Fair Housing Act broadly. Fair Housing issues arise in a range of industries – as illustrated recently by HUD’s involvement in private litigation involving social media advertising. Consequently, financial service providers, landlords, common interest community associations, and any other entity involved in the provision of housing should develop policies and robust training to ensure compliance. That being said, the recent HUD charge against Hudson Harbor is a reminder that often the best way to avoid turning a molehill into a mountain of legal bills, fines and damages is good judgment, sensitivity to each tenant’s particular situation, and good outside legal counsel.

Supreme Court Holds Foreclosure Firms Are (Generally) Not Debt Collectors under the FDCPA

By R. Aaron Chastain on Posted in Debt Collection, FDCPA, Foreclosure, Supreme Court

Supreme Court Holds Foreclosure Firms Are (Generally) Not Debt Collectors under the FDCPAConducting a foreclosure does not make one a “debt collector,” at least for the general purposes of the Fair Debt Collection Practices Act (FDCPA). That fact is the upshot of yesterday’s unanimous Supreme Court decision in Obduskey v. McCarthy & Holthus LLP.

In Obduskey, the law firm of McCarthy & Holthus LLP was hired to conduct a nonjudicial foreclosure in Colorado after Obduskey defaulted on his mortgage loan. McCarthy mailed Obduskey a letter indicating its intent to “commence foreclosure” against the property, which purported to provide notice “[p]ursuant to, and in compliance with” the FDCPA and Colorado law.

Obduskey responded by sending McCarthy a letter under § 1692g(b) of the FDCPA, which allows a consumer to dispute the amount of a debt and requires the “debt collector” to “cease collection” until it “obtains verification of the debt.” Obduskey claimed that McCarthy did not cease its collection efforts or obtain verification but, instead, commenced foreclosure by filing a notice of election and demand with the county public trustee.

Obduskey sued McCarthy in federal court, alleging violations of the FDCPA. McCarthy argued that it was not a “debt collector” under the statute and, thus, could not be held liable. The district court agreed and dismissed the lawsuit, and the Court of Appeals for the Tenth Circuit affirmed the dismissal.

The Tenth Circuit’s decision joined an existing split among the federal circuit courts as to whether the FDCPA generally applied to an entity engaged in nonjudicial foreclosure. Compare Obduskey v. Wells Fargo (10th Cir. 2018) and Vien-Phuong Thi Ho v. ReconTrust Co. NA (9th Cir. 2016) – in which the court held that the FDCPA generally did not apply – with Kaymark v. Bank of America N.A. (3d Cir. 2015), Glazer v. Chase Home Fin. LLC (6th Cir. 2013) and Wilson v. Draper & Goldberg P.L.L.C. (4th Cir. 2006) – in which the court held that such an entity is a debt collector for all of the FDCPA. The United States Supreme Court granted Obduskey’s petition for a writ of certiorari to resolve the split.

The unanimous Supreme Court concluded that an entity performing a nonjudicial foreclosure is not generally a “debt collector” under the FDCPA and, thus, cannot be held liable under the statute, except for violations of the specific requirements of section 1692f(6). The text of the statute was crucial to the Court’s analysis. Section 1692a(6) contains two definitions of “debt collector”:

  1. Any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts.
  2. Any person who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

But the same section of the statute also states: “For the purpose of section 1692f(6) of this title, such term [i.e., “debt collector”] also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.”

The Supreme Court found the final sentence of § 1692a(6) to be determinative. As Justice Breyer’s opinion notes, the additional inclusion of a person engaged in a business “the principal purpose of which is the enforcement of security interests” as a “debt collector” only for the purposes of § 1692f(6) would be “surplusage” if that person was already a “debt collector” subject to the entire FDCPA. In Justice Breyer’s words, if the general definition already included businesses engaged in the enforcement of security interests, “[W]hy add this sentence at all?”

In addition to the text, the Court recognized a logic to Congress’s exemption of enforcers of security interests from the “debt collector” definition. State laws closely regulate nonjudicial foreclosures. Moreover, limiting communications about a foreclosure (as required under the FDCPA) could have an adverse effect on the sales prices, which would be to the debtor’s detriment.

Finally, in language that captures the 30-year shift in the Court’s approach to statutory interpretation, Justice Breyer noted that “for those of us who use legislative history to help interpret statutes,” the legislative history of the FDCPA suggests that Congress intentionally avoided including an entity engaged in the enforcement of a security interest in the general definition of “debt collector.” Such a caveat may have been necessary to some of the more conservative justices’ joinder to the unanimous opinion.

The Court also had to deal (subtly) with its own pronouncement in Justice Gorsuch’s opinion in Henson v. Santander Consumer USA Inc. that “[e]veryone agrees that the term [debt collector] embraces the repo man.” (If the repo man is engaging in repossession – i.e., enforcing a security interest – then why is he a “debt collector”?). Without directly referring to that unfortunate dicta in Henson, the Court effectively walked back its broad language by recognizing that repo activity is “a form of security-interest enforcement” and, thus, expressly excluded from the general definition of “debt collector” under the statute.

Justice Sotomayor filed a concurrence, noting her view that this was a “close case” and expressly inviting Congress to act to clarify the language of the statute “if we have gotten it wrong.” Justice Sotomayor pointed to the final sentence in § 1692a(6) as the deciding factor, reasoning that the language was purely superfluous if an enforcer of a security interest fell within the FDCPA’s general definition of “debt collector.” She also emphasized that, by the opinion’s own language, the decision “does not grant an actor blanket immunity from the mandates of the [FDCPA].” Justice Sotomayor emphasized that a firm engaged in enforcement of a security interest must take “only steps required by state law” to remain outside the FDCPA’s reach and suggested that even if an entity only performed the steps necessary to foreclosure, if it did so without “showing any meaningful intention of ever actually following through,” it could fall back within the general “debt collector” definition.

Justice Sotomayor’s concurrence sounds a warning about the limits of yesterday’s opinion. For creditor’s-rights firms handling foreclosures, there is significant comfort in knowing that those actions they take that are strictly legally necessary parts of the foreclose are protected by the Court’s opinion; however, any actions they take that may be characterized as outside of that judicially endorsed zone of safety may not necessarily be afforded the same level of protection. Drawing the precise contours separating what is and what is not covered is neither simple nor self-evident, but it is a line law firms will have to do their best to draw. See, e.g., Reese v. Ellis, Painter, Ratterree & Adams, LLP (11th Cir. 2012), which holds that a law firm hired to conduct a foreclosure sale was a “debt collector” under the FDCPA because the letters it sent to the debtor had the “dual purposes” of providing notice of a foreclosure sale and demanding payment on the underlying debt. While foreclosure firms can celebrate the opinion, we expect that to be the next battleground in FDCPA litigation.

Part III: Navigating the Maze of Servicing Discharged Debt

By Karlene A. Archer and Alexandra Dugan on Posted in Bankruptcy, Loan Modification, Mortgage Servicing, Secured Creditors

Part III: Modifications Post-Discharge

Welcome to Part III of our series on the servicing of discharged mortgage debt. This part will discuss modifying a borrower’s loan after a discharge. (If you missed Part I or Part II, go ahead and catch up.)

Part III: Modifications Post-DischargeServicers and borrowers struggle with lack of clarity regarding the nature of the relationship between borrower and servicer when the borrower discharges personal liability in bankruptcy. In an ideal world, the borrower would a) reaffirm, b) surrender and move out, or c) if he doesn’t reaffirm or surrender, make timely payments until the debt is paid in full. Unfortunately, borrowers often follow a different path. For example, some make payments after they surrender, only to later become delinquent. Other Chapter 7 borrowers are current when they file for bankruptcy, choose not to surrender or reaffirm, and become delinquent post-discharge. In either of those instances, can a borrower modify his loan? And should the servicer offer modifications in these scenarios?

Discharge of personal liability does not preclude the borrower from making payments voluntarily. Neither does that discharge preclude the delinquent borrower from seeking a loan modification. Some practitioners insist that post-discharge loans cannot be modified because there is no note, only a security instrument, and therefore there is no loan to modify. This relationship can be more accurately described as one where the borrower must pay to remain in the house, and where the note has become non-recourse as to the borrower. The enforceability of that relationship is now anchored only in the property itself. The Department of the Treasury, through its directive regarding HAMP modifications, has explicitly said that this relationship can be modified. Fannie Mae and Freddie Mac have, in turn, suggested language to be used in agreements with these borrowers. All three of those entities have encouraged a servicer that modifies a loan after the borrower has discharged his personal liability to use a disclaimer that all payments are voluntary, and an acknowledgement that the servicer cannot seek to collect against the borrower personally.

While borrowers may seek to modify their relationship with the servicer following discharge, a servicer is not required by law to modify the loan. Instead, the servicer is directed through the modification process by investor guidelines and its own policies. Understandably, where a borrower has received a discharge of personal liability, servicers are wary of violating the discharge injunction, and therefore may be wary of offering loan modifications to these borrowers.

If a servicer intends to offer loan modifications to borrowers post-discharge, it should tailor the population to only those borrowers who have indicated an intent to retain the property. Case law outlining when loss mitigation for discharged borrowers may result in a discharge violation is unclear and fact-specific. However, discharge violations are most often found where a borrower surrenders the property and a servicer solicits that borrower for loss mitigation. Upon surrender, the borrower indicates intent to sever the relationship with the servicer, and the servicer should not offer loss mitigation to that borrower.

Once the servicer confirms the borrower’s intention in the bankruptcy filing, it should carefully consider which products are offered. A loan modification is a hybrid of an old agreement (of which the debt has been discharged) and a new agreement. Investors, particularly GSEs, offer numerous modification products. One such product is referred to as a “Partial Claim Modification,” which involves the borrower entering into a separate note, with a second lien position, in favor of the Department of Housing and Urban Development. Outside of the bankruptcy context, this is a commonly used product with few, if any, negative implications. When considered within the context of a discharge of personal liability, the subordinate note required by this product may be viewed as an impermissible post-discharge reaffirmation when it lacks language acknowledging the discharge. The standard subordinate note provided by HUD does not contain such language.

Servicers should take care when deciding whether, and how, to modify discharged borrowers’ loans. Servicers who choose to modify these borrowers’ loans should ensure the loan modification process is tailored to mitigate risk of discharge injunction violations. Part IV will dive deeper into solicitation of such borrowers and papering any ensuing loan modification agreements to avoid discharge violations.

HPA Compliance Is Back in the CFPB’s Crosshairs

By Jonathan R. Kolodziej on Posted in CFPB, Mortgage Servicing, Regulatory Supervision, UDAAP

HPA Compliance is Back in the CFPB’s CrosshairsOn March 12, 2019, the Consumer Financial Protection Bureau (CFPB) issued the Winter 2019 edition of its Supervisory Highlights report, detailing key examination findings that were discovered during the second half of 2018. The report covers a number of product lines, including automobile loan servicing, deposits and remittances, but spends the most time discussing issues uncovered during mortgage servicing examinations. This demonstrates both that the bureau remains focused on the mortgage servicing industry and that it continues to identify significant issues during the course of its reviews.

One noteworthy mortgage servicing issue that is highlighted by the CFPB relates to compliance with the Homeowners Protection Act (HPA). This is also an area where the CFPB previously provided interpretation and compliance guidance in the form of Bulletin 2015-03. HPA compliance failures have also been described at least four times in prior Supervisory Highlights editions since the CFPB begin publishing them. Given the CFPB’s repeated focus on HPA compliance, servicers would be well served to reevaluate their own policies and practices in light of the most recent guidance.

In the Winter 2019 Supervisory Highlights report, the CFPB explained that it had determined that entities were not properly disclosing denial reasons in connection with private mortgage insurance (PMI) cancellation requests. The CFPB found that entities were sometimes providing inaccurate denial reasons and, in some scenarios, were also providing incomplete denial reasons and misrepresenting the “conditions for PMI removal.”

Complying with the HPA in the manner in which the CFPB expects when denying a PMI cancellation request is challenging to say the least. The CFPB has made it clear that, not only must your data and reasoning supporting the denial be accurate, but you also must communicate all possible reasons why a request was denied. For example, it would not be sufficient to just state as the denial reason that the LTV threshold has not been met if the borrower also does not meet other applicable requirements, such as a good payment history or certification that there aren’t any subordinate liens on the property. Rather than evaluating under a waterfall approach and only identifying the particular requirement that the borrower was unable to satisfy (like in a typical loss mitigation evaluation), the CFPB instead expects mortgage servicers to evaluate the borrower against all criteria and specify all requirements that are not yet satisfied.

Although not directly addressed in the Winter 2019 Supervisory Highlights, servicers should also be mindful of how investor guidelines for PMI cancellation may come into play and how that interacts with the federal law baseline set forth through the HPA. Ensuring that all applicable investor and federal law criteria are accounted for within PMI notices can quickly make those letters confusing and cumbersome. However, the CFPB expects that the appropriate letters must clearly explain all requirements that may apply to a borrower in order to have PMI cancelled and, if applicable, all reasons why a borrower has not met those standards.

Interestingly, rather than frame these types of reason for denial issues as HPA violations, the CFPB refers to them as being deceptive practices, a clear reference to the prohibition in the Dodd-Frank Act on unfair, deceptive and abusive acts or practices. The CFPB notes in a footnote that it was unable to classify these practices as actual HPA violations because the servicer was responding to verbal cancellation requests, and the HPA technically only applies to written cancellation requests. Nevertheless, this public warning from the CFPB should spark servicers to review their PMI cancellation letter templates and their policies and procedures surrounding denials of PMI cancellation requests to ensure they align with the CFPB’s expectations. Practices that go above and beyond what is minimally required, such as responding to verbal cancellation requests, are not immune from criticism and should also be scrutinized.

CFPB’s Upcoming Debt Collection Proposed Rule: What to Expect on Timing

By Lee Gilley, J. Riley Key and Jonathan R. Kolodziej on Posted in CFPB, Debt Collection, FDCPA

CFPB’s Upcoming Debt Collection Proposed Rule: What to Expect on TimingThe Consumer Financial Protection Bureau (CFPB) previously indicated in its Fall 2018 Rulemaking Agenda that it intends to issue a Notice of Proposed Rulemaking (NPRM) in the Spring of 2019 regarding debt-collection practices and the Fair Debt Collection Practices Act (FDCPA). The regulatory agenda also suggests that the proposed rule may be released as soon as March 2019. We have previously written about the topics and issues the CFPB may address through this particular rulemaking.

While we wait for the long-anticipated Notice of Proposed Rulemaking to be released—hopefully any day now—we thought we would take a look at how the CFPB has handled prior significant rulemakings in terms of the length of comment periods, how long the CFPB contemplates comments before issuing final rules and how long the CFPB usually gives the industry to implement the applicable changes. To do that, we looked at applicable dates for the following rulemakings:

  • 2013 Mortgage Servicing Rules;
  • ECOA Valuations Rule;
  • LO Comp;
  • TRID;
  • ATR/QM;
  • Prepaid Cards; and
  • Payday Lending Rule.

For each of the above-referenced rulemakings, we gathered the following data points:

  • Date of Notice of Proposed Rulemaking;
  • Date Comments Due Regarding Notice of Proposed Rulemaking;
  • Date of Final Rule; and
  • Effective Date of Final Rule.

For simplicity, and in order to get a sense of what to expect when the debt collection Notice of Proposed Rulemaking is released, we did not consider any comment due dates or final rule effective dates that were subsequently extended for one reason or another. Instead, we relied upon the initial date selected by the CFPB. For example, TRID and the Prepaid Cards rule both had various effective date extensions. In those instances, our analysis only relied upon what the CFPB originally intended in terms of an implementation period.

Based upon this information, it appears that the CFPB typically gives around 54 days for the public to submit comments on its larger rulemakings. Once the comment period closes, it typically takes approximately nine and a half months for the CFPB to issue a final rule with an effective date almost 10 months later.

Based upon those historical figures alone, it appears likely that the CFPB will offer the public close to two months to consider and comment on the Notice of Proposed Rulemaking. The final rule may then be issued approximately one year after the Notice of Proposed Rulemaking is issued. It would also not be unusual for the CFPB to give the industry a significant implementation period. If the proposed rule is released at some point in March 2019, we likely are looking at an effective date for a final debt collection rule in early 2021.

FHA Expands Program to Accelerate Financing of Low-Income Housing Tax Credit Multifamily Housing Projects

By Heather Howell Wright and Austin Holland on Posted in Affordable Housing, Compliance, Fair Housing, HUD, HUD Requirements, Regulatory Supervision

FHA Expands Program to Accelerate Financing of Low-Income Housing Tax Credit Multifamily Housing ProjectsThe mission of the U.S. Department of Housing and Urban Development (HUD) is, in part, to bolster the economy by strengthening the housing market, protecting consumers, and working to meet the needs for quality affordable rental homes. To further this mission, the Federal Housing Administration (FHA) launched a pilot program in 2012 to streamline mortgage insurance applications for Section 223(f) Program projects with equity from the sale of Low-Income Housing Tax Credits (LIHTC). The Section 223(f) Program insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing.

This FHA pilot program was a success, and the FHA is now moving to build on that success. On February 21, 2019, the FHA expanded the pilot program to include new construction and substantial rehabilitation of multifamily housing under its Section 221(d)(4) and Section 220 Programs.

Section 221(d)(4) insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily rental or cooperative housing for moderate-income families, the elderly and the disabled. Section 220 insures loans for multifamily housing projects in urban renewal areas, code enforcement areas and other areas where local governments have undertaken designated revitalization activities.

This expanded pilot program is designed to increase the speed and efficiency of processing mortgage insurance applications for low-risk LIHTC transactions. Currently, the average processing time for LIHTC deals is approximately 90 days. Under this expanded pilot, processing times are reduced by up to 60 days. This drastic decrease allows borrowers to lock in interest rates more quickly, an especially important tool in an environment with rising interest rates.

FHA multifamily transactions that include LIHTCs make up approximately 30 percent of the FHA’s total multifamily volume. This expanded pilot program, now covering programs under Sections 221(d)(4), 220 and 223(f), is expected to increase the amount of FHA-supported production and preservation of affordable multifamily housing.

In addition to encouraging investment in affordable multifamily housing broadly, the expanded pilot program will encourage investments in low-income urban and rural communities and support development in Opportunity Zones. Opportunity Zones are census tracts in low-income communities experiencing economic distress. This action represents one of a host of programs offered by the federal government to address the crisis in the shortage of affordable housing.

 

Major Data Privacy Changes at Tech Companies Are a Sign of the Times

By Blake B. Goodsell on Posted in Data Privacy, FinTech, GDPR

Major Data Privacy Changes at Tech Companies Are a Sign of the TimesRecently there have been a string of announcements from large tech companies about a shift in focus from open platforms to more privacy-focused communications systems. This represents a sea change for the industry, which has historically been depicted as data hungry and privacy starved. The change highlights just how far public opinion has evolved in the United States in recent years.

The move of large tech companies to more privacy-centric platforms coincides with a broader move toward a nationwide data privacy standard. Currently California’s ambitious data privacy law, the California Consumer Privacy Act of 2018 (CCPA), dominates the privacy landscape. Outside of California, several other states are already using the California law as a model for new state-level privacy laws. Nationally, there is also a move to address privacy issues. For instance, the Consumer Data Protection Act, a bill sponsored by Sen. Ron Wyden (D-OR), would create a set of minimum cybersecurity and privacy standards and proposes a national “Do Not Track” system. It would also establish a right for the consumer to know what personal data is being collected and how it’s being used. This follows another high-profile privacy bill floated in December called the Data Care Act of 2018. That bill would introduce a “duty to care” approach to regulation and would expand the Federal Trade Commission’s ability to enforce privacy rules. These proposed bills were followed by an independent report last month released by the Government Accountability Office recommending that Congress develop comprehensive internet privacy legislation. And on February 26, 2018, the House Subcommittee on Consumer Protection and Commerce held a hearing titled “Protecting Consumer Privacy in the Era of Big Data.” During the hearing, House Republicans seem to agree on the need for a nationwide data privacy standard. However, they were not enthusiastic about emulating existing regulations such as the CCPA, which they view as unduly burdensome.

Although the U.S. regulatory landscape continues to inch along, the speed at which public opinion is evolving should lead business to analyze  privacy practices and proactively build out more robust privacy controls, both as a function of expanding regulation and as an accommodation to evolving consumer expectations.

HUD Drastically Cuts Advance Notice for REAC Inspections

By Heather Howell Wright, Austin Holland and Christopher K. Friedman on Posted in Affordable Housing, Compliance, Fair Housing, HUD, HUD Requirements, Regulatory Supervision

HUD Drastically Cuts Advance Notice for REAC InspectionsYou are the property manager for a HUD-subsidized apartment development. One day, the owner of the development rushes into your office, visibly frantic. The owner says, “We just received a letter from HUD’s Real Estate Assessment Center (REAC) that REAC inspectors have scheduled the property for an inspection.” You respond, “Don’t worry — with extensions we have at least 120 days before the REAC inspectors arrive.” The owner replies, “No, the inspection is scheduled 14 days from today.”

On February 20, 2019, the U.S. Department of Housing and Urban Development (HUD) announced it is drastically reducing the advance notice it provides to public housing authorities (PHAs) and private owners of HUD-subsidized apartment developments. The new notice standard is 14 calendar days – a major reduction from the 120 days HUD used to give owners and developers.

As rationale for the change, HUD expressed concern that the 120-day lead time allowed certain public housing authorities and private property owners to undertake cosmetic “just-in-time” repairs to properties rather than continuous maintenance programs. HUD Secretary Ben Carson stated in the PIH Notice release that “[i]t’s become painfully clear to us that too many landlords whom we contract with were using the weeks before their inspection to make quick fixes, essentially gaming the system.”

Secretary Carson further explained, “[t]he action we take today is part of a broader review of our inspections so we can be true to the promise of providing housing that’s decent, safe and healthy for the millions of families we serve.” To that end, HUD also announced a nationwide listening tour to gather input from the public and HUD stakeholders that is focused on a forthcoming pilot program to test new approaches to inspecting HUD-assisted properties.

How can you learn more?

If you have additional question on this topic, please reach out to the authors of this blogpost at hwright@bradley.com, aholland@bradley.com, or cfriedman@bradley.com. Heather Wright and Austin Holland will also be attending the Tennessee Housing Conference in Nashville on March 6 and 7, 2019. They will be available to discuss HUD’s significant reduction in advance notice for REAC inspections or other questions regarding regulatory compliance in affordable housing.

Ohio Mortgage Servicing Update

By Robert S. Niemi and Amy Magdanz Rose on Posted in Mortgage Loan Originators, Mortgage Servicing, NMLS

The Ohio Division of Financial Institutions (DFI) recently provided the much-needed updates to the recent legislation that expanded the registration requirements under the Ohio Residential Ohio Mortgage Servicing UpdateMortgage Lending Act (RMLA). The bill, HB 489, was passed unanimously in December 2018 and signed by Gov. Kasich in his last days in office. The expanded RMLA will now require companies that engage in mortgage servicing activities in Ohio to obtain a certificate of registration. The expansion of the RMLA now extends to both direct mortgage servicers and entities that merely hold mortgage servicing rights (MSRs).

Effective Date

Although there is not an official effective date yet, if companies apply for a Certificate of Registration by March 31,, 2019, the DFI will not take any action for unlicensed activity, even if the registration process is not complete before the effective date. The application checklist is now on the NMLS, and we note that the process and requirements are very similar to previous application requirements.

Existing Companies

Companies that currently hold a RMLA Certificate of Registration for mortgage origination activities must update their business activities on the NMLS by the end of the year to indicate that they will engage in mortgage servicing in Ohio. Practically though, this should be updated prior to renewal so that renewal filings and attestations will be accurate.

No In-State Office Requirement

There is no Ohio in-state office requirement with the new changes to the RMLA. Several third parties have suggested that in-state office requirements may exist under the RMLA. This confusion is a holdover from the previous language modification made under HB199 in 2017. That change brought the registration of mortgage lenders and mortgage brokers, as well as the licensing of mortgage loan originators, under one act, Ohio Revised Code 1322 (i.e., the Ohio Residential Mortgage Lending Act). Bob Niemi, Senior Advisor with Bradley’s Financial Services team, was heavily engaged in the 2017 language modification  process while working with the Ohio Mortgage Bankers Association. The language was intended to require registration for all locations within the state of Ohio where residential mortgage activities take place. It was not intended to require registered entities to maintain an in-state office requirement, and the latest changes do not impose such a requirement.

Existing Requirements

The existing requirements of the RMLA, including registration of branches, will apply to mortgage servicers under HB 489 with one general exception. A company applying for a new Certificate of Registration as a mortgage servicer must designate an Operations Manager. However, the DFI has stated that if the company only engages in servicing activities and will not engage in mortgage origination or brokering activities, the operations manager will not be required to be a licensed Ohio mortgage loan originator.

We encourage you to contact Bob Niemi, Amy Magdanz Rose or Haydn Richards for additional review of activities and assistance in meeting the application and compliance dates required by this new change in Ohio law.

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