Module 1 Part C part 3

Annual Privacy Notices

Financial institutions are required to send annual privacy notices to customers, and these notices must contain the same information that is included in the initial privacy notice, including notice of the right to opt-out and information on exercising the right to opt-out (12 C.F.R. §1016.5).

Regulatory Agency and Regulations

Before the creation of the CFPB, implementation and enforcement of the GLB Act was carried out by the federal banking regulatory agencies and the FTC. Now, the CFPB is responsible for implementation and enforcement of the law and the GLB Act regulations, which are known as Regulation P (12 C.F.R. §1016 et seq.). The provisions of the GLB Act require compliance with the Safeguards Rule (16 C.F.R. §314). The intention of the Safeguards Rule is to ensure the protection of privacy of personal information with the creation, implementation, and maintenance of an effective security program. This rule was adopted by the Federal Trade Commission in 2002.

Recordkeeping Requirements

There are special recordkeeping requirements under the MAP Rule. Individuals and entities that are subject to the Rule must keep copies of commercial communications about mortgage credit products for 24 months. This 24-month period is measured from the last date on which the person made or disseminated the commercial communication regarding a mortgage credit product (12 C.F.R. §1014.5(a)).

Practices Prohibited by the GLB Act

The GLB Act prohibits the following: Prohibition on the sharing of account numbers: with a few limited exceptions, the GLB Act prohibits the sharing of account numbers for marketing purposes. Limitations on the re-disclosure and reuse of information: if a third party obtains nonpublic personal information that is released pursuant to an exception or as a result of a customer's failure to opt-out, the third party can only use the information for limited purposes. The GLB Act does not include specific penalty provisions for violations of the law's privacy provisions. Violations of the law would be addressed by the CFPB.

ATR and QM Rules Overview

When Congress adopted the Dodd-Frank Act in 2010, it amended TILA by adding a provision stating that no creditor could make a residential mortgage loan without making a reasonable, good faith determination, based on verified and documented information, that the consumer had a reasonable ability to repay the loan and related obligations (15 U.S.C. §1639C(a)(1)). This requirement applies to all mortgage loans. While Congress was writing the Dodd-Frank Act, creditors expressed concern over litigation that may result from allegations of their failure to meet ability to repay requirements. In order to alleviate these concerns, Congress added language to the law providing a safe harbor from liability for the origination of qualified mortgages. Congress also issued a directive for the Consumer Financial Protection Bureau to write regulations to implement ability-to-repay and qualified mortgage requirements. The CFPB released the Ability to Repay Rule (ATR Rule) and the Qualified Mortgage Rule (QM Rule) in January 2013, and the rules took effect one year later, in January 2014. Creditors must retain records to show compliance with the ATR Rule and the QM Rule for at least three years after consummation of a covered transaction. The following sections will review requirements for compliance with these rules.

Online Delivery of the Annual Privacy Notice

Effective October 28, 2014, changes were made to the Gramm-Leach-Bliley Act with regard to the delivery of annual privacy notices. The law was amended to allow for online delivery of the annual privacy notice under certain conditions. This was done in an attempt to reduce information overload for customers, and to help alleviate duplicative paper privacy notices for customers who generally do not have the ability to opt out of the institution's information-sharing practices. Financial institutions may post annual privacy notices online in order to satisfy the annual notice requirement if all of the following are true: Opt-out rights are not triggered by the institution's information-sharing practices Opt-out notices required by FCRA have previously been provided, if applicable, or the annual privacy notice is not the only notice provided to satisfy these requirements The information included in the privacy notice has not changed since the customer received the immediately preceding notice (whether initial, annual, or revised), with some exceptions (discussed next) The financial institution uses the model form provided in Regulation P The law permits a financial institution to use the online delivery method if the only changes that have been made to its privacy policy were to: Eliminate categories of information that are disclosed, or Eliminate categories of third parties to whom information is disclosed If other changes are made to information-sharing policies, the online delivery method may be used for the annual privacy notice if a revised privacy notice is first sent, using standard delivery methods, to inform consumers of the policy changes (79 FR 64066). The annual privacy notice must be continuously posted, in a clear and conspicuous manner, on a page of the financial institution's website. The webpage may not require the customer to engage in a log-in or similar process or agree to any conditions before being able to view the notice. In order to assist customers with limited or no access to the Internet, the institution must mail annual notices to any customers who request them by telephone. These notices must be delivered within ten days of receiving the customer's request. To make customers aware that the notice is available online, the institution must insert, at least once per year, a clear and conspicuous statement on an account statement, coupon book, or notice or disclosure issued by the institution under the law. The statement must inform customers that the annual privacy notice is available for viewing online and that a hard copy will be mailed to any customer who requests one. This statement must include a specific telephone number for customers wishing to request a paper copy. The statement must also include a direct web address that customers can type into a browser to access the notice. Finally, the statement must note that the privacy policy has not changed (79 FR 64071). If the financial institution has changed its privacy practices, or engages in information-sharing practices for which customers have a right to opt out, it must still follow one of the other delivery methods provided for under the Gramm-Leach-Bliley Act.

Opt-Out Notices

Financial institutions that intend to share nonpublic personal information must provide consumers and customers with a notice of their right to opt-out of the sharing of information with non-affiliated third parties (12 C.F.R. §101610(a)). The notice must include a description of the type of information that the financial institution may disclose, and "reasonable means" to opt-out, such as opt-out forms which are easy to complete or toll-free telephone numbers to representatives who will accept the opt-out information. Regulation P provides that a financial institution gives a consumer a reasonable means of opting out if it: Gives a consumer 30 days to complete an opt-out form and mail it in or call a toll-free number and opt out. This opt-out period is measured from the date on which the financial institution mails the notice to the consumer. Gives a consumer who opens an online account 30 days to opt out "by any reasonable means." This opt-out period is measured from the date on which the consumer opens an account online and acknowledges receipt of the electronic privacy notices. Gives a consumer in an isolated transaction the opportunity to opt out immediately The requirement to provide opt-out notices includes some exceptions. The exceptions include: Disclosures to a third party in order to complete a transaction requested by a consumer or customer (this exception would include disclosures made by mortgage brokers to settlement service providers in order to close a mortgage loan). This exception applies as long as a financial institution provides: An initial privacy notice, and Enters a contract with the third party in which the third party agrees that it will only use the information to perform the service requested Disclosures to financial institutions that share joint-marketing agreements (12 C.F.R. §1016.13) Other exceptions to notice and opt-out requirements include disclosures: Made with the consent of the consumer or customer Made to resolve customer complaints Necessary to protect a number of interests, including the financial institution's interest in the security of its records, the interest of a person holding a legal claim that relates to the consumer or customer, and the interests of a person who is acting as the consumer or customer's fiduciary Made to insurance rate advisory organizations or to a person assessing an institution's compliance with industry standards Necessary to comply with federal, state, and/or local laws Permitted or required by other laws and made to a law enforcement agency, the FTC, or state insurance regulators, or made in response to an investigation related to public safety To a consumer reporting agency in compliance with the Fair Credit Reporting Act Made in connection with the sale, merger, or transfer of all or a portion of a business

Agencies Overseen by HUD

HUD incorporates a number of agencies and offices meant to serve the needs of communities across the United States. These include: Federal Housing Administration (FHA) Federal Housing Finance Agency Center for Faith-Based and Neighborhood Partnerships Departmental Enforcement Center Office of Community Planning and Development Office of Congressional and Intergovernmental Relations Office of Equal Employment Opportunity Office of Fair Housing and Equal Opportunity Office of Field Policy and Management Office of the General Counsel Government National Mortgage Association (Ginnie Mae) Office of Healthy Homes and Lead Hazard Control Office of Hearings and Appeals Office of Labor Relations Office of Policy Development and Research Office of Public Affairs Office of Public and Indian Housing Office of Small and Disadvantaged Business Utilization

Record Retention

If a contract or other document is involved in interstate or foreign commerce, and another law, rule, or regulation requires that the document be maintained, the E-Sign Act allows for the record to be kept electronically. The electronic record must accurately reflect the information set forth in the document, and must remain accessible to all persons who are entitled to access it according to the relevant law, rule, or regulation, for the required retention period. It must also be kept in a form that is able to later be accurately reproduced, by transmission, printing, or otherwise (15 U.S.C. §7001(d)(1)). The law does not reference a time limitation for record retention, but presumably the record retention period would be the same as the period required for retaining paper copies. Oral communications, or a recording of an oral communication, do not qualify as an electronic record under the Act (15 U.S.C. §7001(c)(6)).

Duties of the CFPB

In addition to the "consumer financial protection functions" that the CFPB inherited from the transferor agencies, it must fulfill the following functions, assigned by the Dodd-Frank Act: Conduct financial education Collect and respond to consumer complaints Research and monitor the markets for consumer financial products and services Supervise covered persons for compliance with federal consumer financial laws Take enforcement actions for violations of federal consumer financial laws (12 U.S.C. §5511(c)) These functions are divided among the various offices of the CFPB. Title X of the Dodd-Frank Act establishes the CFPB in order to regulate providers of consumer financial products and services under federal law through a single regulatory agency (12 U.S.C. §5491(a)). In order to understand the scope of the CFPB's regulatory authority, it is necessary to understand the meaning of the term "consumer financial products and services." The law defines consumer financial products and services as those "offered or provided for use by consumers primarily for personal, family, or household purposes" in any of the following: Extending credit or servicing loans Providing real estate settlement services Performing appraisals of real estate Collecting, analyzing, maintaining, or providing consumer report information, including credit history information, that is used or expected to be used in a decision regarding the offering of a consumer product or service Engaging in deposit-taking activities Selling, providing, or issuing stored value payment instruments (such as cash cards and smart cards) Providing check cashing, collecting, or guaranty services Providing financial data processing products or services Providing financial advisory services (other than those related to the purchase of securities regulated by the SEC) Collecting debt related to a consumer product or service Other financial products and services as defined by the CFPB The first four types of consumer financial products and services on the list are related to mortgage lending transactions; one of the principal goals of the CFPB is the protection of consumers while engaged in transactions to obtain loans secured by their homes. Excluded from the definition of "financial products and services" are: The business of insurance, and Electronic conduit services

Mortgage Origination Examination Procedures

In conjunction with its general Supervision and Examination Manual, the CFPB has also issued a set of Mortgage Origination Examination Procedures. [1] These are applicable specifically to examinations of mortgage brokers and lenders. Students should note that these entities are collectively referred to as "mortgage originators" throughout the Procedures. The objectives of an examination are to: Assess the quality of the mortgage originator's compliance management system Identify acts or practices that increase the risk of violating federal laws Gather facts that may determine if a mortgage originator engages in acts or practices likely to result in the violation of federal lending laws, and Determine if violations of the law have occurred and if further supervisory or enforcement action is necessary An examination will determine whether mortgage originators are in compliance with federal consumer financial laws. The Examination Manual also directs examiners to identify any unfair, deceptive, or abusive acts or practices, and outlines the standards that the CFPB will use in assessing UDAAPs. These standards provide that acts or practices are: Deceptive if likely to mislead a consumer, and the consumer's interpretation is reasonable under the circumstances Unfair if injury to consumers is likely, not reasonably avoidable, and is not outweighed by potential benefits Abusive if they interfere with a consumer's ability to understand the terms or conditions of a product or service, exploit a consumer's lack of understanding, or take advantage of a consumer's reasonable reliance on the mortgage professional

Calculating Points and Fees and Error Resolution

It is extremely important to calculate points and fees correctly since the 3% threshold for points and fees is a factor in determining whether a transaction is one for a qualified mortgage. The principal challenge in accurately computing points and fees is identifying the costs that are included in the calculation. These include: Compensation paid by a consumer or creditor to a loan originator (after taking into account exceptions provided under the Rule, this is generally compensation paid by a creditor to a mortgage broker) Items included in the finance charge, including: Charges by creditors, such as loan origination fees Charges by third parties, if the creditor requires use of a particular provider, if the fee is paid to the creditor's affiliate, or if the creditor retains a portion of the provider's fee Real estate-related fees if the creditor receives indirect compensation for the fee, the fee is paid to the creditor's affiliate, or the charge is unreasonable Closing agent fees, if the creditor requires the use of a particular agent or retains a portion of the fee Mortgage broker fees Certain items that are included in the finance charge are excluded for the purpose of calculating the points and fees and determining whether they meet or exceed those allowed for a qualified mortgage, such as: Insurance Upfront and annual mortgage insurance premiums (for FHA loans) Funding fees (for VA loans) Premiums for private mortgage insurance if due after consummation (premiums due at or before consummation are included in the finance charge) Third-party charges not retained by the creditor Bona fide discount points (points paid by the borrower to reduce the interest rate), subject to other requirements If a qualified mortgage is originated and the creditor or assignee subsequently discovers that the points and fees for the transaction exceed applicable caps, the loan may retain its status as a qualified mortgage if the following conditions are met: The loan meets product feature prerequisites for a qualified mortgage The creditor or assignee pays the consumer the sum of: The dollar amount by which the transaction's total points and fees exceed the applicable limit established by the QM Rule for the loan, and Interest on the dollar amount paid to the consumer, calculated using the contract interest rate applicable for the period between the date of consummation and the date the payment is made to the consumer The payment to the consumer is made within 210 days after consummation, and before any of the following occur: The consumer files an action related to the mortgage The consumer sends a written notice to the creditor, assignee, or servicer stating that the points and fees exceed the applicable caps The consumer becomes 60 days past due on his or her mortgage payments The creditor or assignee maintains and follows policies for post-consummation review of points and fees, and has a policy of making required payments to consumers when inadvertent points and fees overages are discovered The effective date for the cure provision was November 3, 2014, and is effective for transactions consummated on or after that date. The cure provision is not permanent, with a sunset date of January 10, 2021. The CFPB has stated that it does not believe permanent cure provisions are necessary, since the temporary cure should provide sufficient time for creditors to develop confidence in compliance systems and for economic and market conditions to stabilize.

Debt-to-Income Ratio and Residual Income

Monthly debt-to-income ratio or residual income is one of the eight factors that creditors must consider in the evaluation of a consumer's ability to repay. When calculating a consumer's monthly debt-to-income ratio, creditors must consider the ratio of the consumer's total monthly debt to his or her total monthly income. Total monthly debt is defined to include the sum of monthly payments on the loan sought, any simultaneous loans, mortgage-related obligations (e.g., taxes, hazard insurance, mortgage insurance, condominium fees, etc.), current debt obligations (e.g., student loans, auto loans, credit cards, etc.), alimony, and child support. Total monthly income is defined to include the consumer's verified current or reasonably expected income plus income from verified assets. Examples of "reasonably expected income" include verified salary, verified bonuses, or verified seasonal employment. Residual income refers to the income that a consumer has left over after paying his or her obligations. It is determined by subtracting the consumer's total monthly debt obligations from his or her total monthly income. One of the most evident distinctions between qualified mortgages and non-qualified mortgages is the rigid 43% debt-to-income ratio limitation for qualified mortgages established under the QM Rule. There is no such limitation for non-qualified mortgages. The CFPB stated that it allowed for greater flexibility with regard to DTI ratios under the ATR Rule to allow creditors to determine on a case-by-case basis whether a DTI ratio is acceptable or represents too great a risk. This would help prevent consumers being cut off from access to responsible credit based on the debt-to-income ratio alone.

Recordkeeping

Mortgage professionals engaged in telemarketing are required to maintain records of all telemarketing activities for a period of 24 months from the date the materials were produced. Examples include: Advertising, brochures, telemarketing scripts, and promotional materials Name and last known address of each customer, the goods/services purchased and the amount paid for them Name, last known home address and telephone number of current and former employees Any authorizations or informed consent agreements from consumers who agree to receive telemarketing calls (16 C.F.R. §310.5) Sellers and telemarketers, as part of routine business practice, should establish and carry out written procedures to prevent unwanted calls and calls to those who are listed on the Do-Not-Call Registry. Doing so can help entities to avoid liability in certain cases under the Telemarketing Sales Rule. Telemarketers must access the Do-Not-Call Registry every 31 days to update their call lists by removing the phone numbers of any individuals who have recently added themselves to the Do-Not-Call List.

Requirements of the Do-Not-Call Provisions

Mortgage professionals involved in sales and telemarketing practices must provide a truthful and prompt verbal disclosure of the following information: The identity of the caller The fact that the purpose of the call is to sell goods or services The nature of the goods/services being sold Assurance that no purchase or payment is required to participate in any type of promotion One of the most important procedures required by the Telemarketing Sales Rule is the requirement for businesses that conduct telemarketing to access the Do-Not-Call Registry every 31 days. This requirement is aimed at ensuring telemarketing call lists are updated with the names and phone numbers that are newly registered. Unless a mortgage professional limits his or her calls to individuals with whom there is an established business relationship, or individuals who have provided written agreements to accept calls, it is illegal to initiate calls without obtaining access to the Do-Not-Call Registry. Access to the Registry is available to telemarketing professionals on a fee basis. Fees are assessed based on the number of area codes accessed, and the FTC establishes an annual maximum fee.

MAP Rule Overview

On July 19, 2011, the Federal Trade Commission (FTC) published the MAP Rule (12 C.F.R. §1014 et seq.), which addresses misrepresentations in the advertising of mortgage products. Just two days after the FTC issued the MAP Rule as a final rule, rulemaking authority transferred to the CFPB. The CFPB is primarily responsible for enforcing the rule, but shares some enforcement authority with the FTC, pursuant to the Memorandum of Understanding signed by both agencies in January 2012. The provisions of the MAP Rule are referred to as Regulation N.

Privacy Rules Overview

Privacy rights are a significant concern for mortgage professionals who are involved in the solicitation, origination, processing, closing and servicing of mortgage loans. Multiple laws protect the privacy of borrowers, and violation of these laws can result in serious liability. In addition to the Gramm-Leach-Bliley Act, which protects the financial privacy of consumers, federal and state laws protect consumers from unwanted solicitations from mortgage bankers and mortgage brokers. The Do-Not-Call Implementation Act was signed into law in 2003 as part of earlier legislation - the Telemarketing Consumer Fraud and Abuse Prevention Act and the Telemarketing Sales Rule (16 C.F.R. §310). The Do-Not-Call Implementation Act authorized the Federal Trade Commission (FTC) to implement and enforce the Do-Not-Call Registry. The FTC's authority covers interstate calls, while the Federal Communications Commission (FCC) covers calls made to and from points within the same state. As a result of the Dodd-Frank Act, the CFPB shares enforcement authority for the Telemarketing Sales Rule. In their memorandum of understanding, the FTC and the CFPB will consult on rulemakings under the Telemarketing Sales Rule regarding the use of telemarketing to offer consumer financial products and services. The telemarketing legislation is intended as a consumer protection law that allows consumers to restrict unwanted sales calls from coming into their homes. Consumers are required to take the initiative to place their names on the Do-Not-Call Registry. Under the original provisions of the Telemarketing Act, consumers were required to renew their entry in the registry every five years. Following amendments made by the Do-Not-Call Improvement Act of 2007, phone numbers added to the registry become permanent. The provisions of the Telemarketing Act and Sales Rule apply to any business or individual engaged in the practice of telemarketing. Telemarketing is generally defined as calls made as part of a plan or program to persuade consumers to purchase goods or services.

Prohibited Misrepresentations of Loan Terms

Prohibited misrepresentations of loan terms include: Misrepresentations of interest charged for a mortgage product: misstatements of the amount of interest due each month are prohibited. Failing to indicate that a particular product allows the lender to add unpaid interest to the principal is also prohibited (12 C.F.R. §1014.3(a)). Misrepresentations of APR: misrepresenting the APR, simple annual rate, periodic rate, or any other rate is prohibited (12 C.F.R. §1014.3(b)). Misrepresentations about prepayment penalties: failing to disclose the fact that a loan product may include a prepayment penalty provision or failing to accurately state the amount of the penalty or the length of time that it is in force is prohibited (12 C.F.R. §1014.3(f)). Misleading terms concerning the variability of interest, payments, or other terms: use of the word "fixed" is not allowed when the interest, payments or other terms are actually adjustable (12 C.F.R. §1014.3(g)). Misleading claims of the type of mortgage credit product offered: an example of a misleading claim is stating that the product offered is fully amortizing when it is not (12 C.F.R. §1014.3(i)). Misrepresentations of the potential for default: misrepresentations regarding the consequences of missed payments are prohibited, as are misrepresentations regarding the consequences of failing to pay taxes or insurance. Consumers must understand that a failure to make any of these payments is a default that may jeopardize their homeownership (12 C.F.R. §1014.3(l)). Misrepresentations of the right to reside in the dwelling that secures the loan: these types of misrepresentations are associated with reverse mortgages, causing older homeowners to fail to understand how long and under what conditions they will be able to remain in their homes (12 C.F.R. §1014.3(p)).

Prohibited Misrepresentations Regarding Additional and/or Affiliated Services

Prohibited misrepresentations related to additional and/or affiliated products and services include: False claims about additional products or features sold with the mortgage credit product: products commonly sold with mortgages include credit insurance, credit disability insurance, or credit unemployment insurance, and common misrepresentations regarding these insurance products include the benefits offered and the duration of the benefits. Borrowers are sometimes encouraged to purchase these single-premium products and to finance their purchase without understanding that although the cost is financed over the full term of the loan, the benefits are effective for only a few years (12 C.F.R. §1014.3(d)). Misrepresentations regarding an association between the lender and the government: misrepresentations include false claims that the provider is affiliated with any government program. Prohibited misrepresentations include the deceptive use of logos, forms, or symbols that resemble those used by the government. The FTC clarifies that government logos may be used as required or allowed, including the advertising of FHA programs (12 C.F.R. §1014.3(n)). False claims of the source of commercial communications: another prohibited but common deception is the false claim that communication with the consumer is made by or on behalf of the consumer's current mortgage lender or servicer (12 C.F.R. §1014.3(o)). Misrepresentations related to counseling services: deceptive claims regarding the availability of counseling services and of the qualifications of those providing services is not allowed. This section does not prohibit truthful, non-deceptive references to valid professional designations (12 C.F.R. §1014.3(s)).

Prohibited Misrepresentations Relating to Fees and Costs

Prohibited misrepresentations related to fees and costs include: Misrepresentations about fees or costs: misleading statements regarding the fees and costs associated with a loan product are prohibited (12 C.F.R. §1014.3(c)). Misrepresentations about taxes or insurance associated with a mortgage credit product: the terms, amounts, and requirements for payment of taxes or insurance may not be misrepresented; specifically, consumers must receive information on requirements for tax and insurance payments and an indication of whether the monthly payments for an advertised loan product include taxes and insurance (12 C.F.R. §1014.3(e)). Misrepresentations about the consumer's ability to obtain any mortgage product or term: prohibited representations include claims that the consumer has been pre-approved or guaranteed for any product or term (12 C.F.R. §1014.3(q)). Misrepresentations of the consumer's ability to refinance or modify any mortgage product or term: prohibited representations also include claims that the consumer has been pre-approved for or guaranteed any refinancing or modification (12 C.F.R. §1014.3(r)).

Prohibited Misrepresentations of Payments and Consumer Savings

Prohibited misrepresentations related to payments and consumer savings include: Misleading rate or payment information: advertisements cannot include misleading information regarding rates or payment amounts that will not be available for the full term of the loan (12 C.F.R. §1014.3(h)). False claims regarding the amount of cash or credit available: false representations regarding the amount of cash or credit from a transaction are prohibited (12 C.F.R. §1014.3(j)). Misleading claims concerning payments: generally, misrepresentations regarding the number, amount, and timing of payments are prohibited, and in the case of a reverse mortgage loan, it is illegal to advertise "no mortgage payments" without clarifying that payments of taxes and insurance are required (12 C.F.R. §1014.3(k)). Misleading claims regarding debt resolution: false or misleading claims that a product can reduce, eliminate, or restructure a debt or any other obligation are prohibited (12 C.F.R. §1014.3(m)).

Homeownership Counseling

RESPA requires that a list of homeownership counseling organizations be provided to a loan applicant no later than three business days after receiving a completed application. The document provided must be a clear, conspicuous written list of homeownership counseling organizations that are local to the consumer and provide relevant counseling services. A lender is considered to be in compliance with this requirement when the following language is used: "The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you. This list shows you several approved agencies in your area. You can find other approved counseling agencies at the Consumer Financial Protection Bureau's (CFPB) website: consumerfinance.gov/mortgagehelp or by calling 1-855-411-CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at http://portal.hud.gov/hudportal/HUD?src=/ohc_nint." The list may not be more than 30 days old at the time that it is provided. It may be provided with other disclosures. Loan counseling requirements include: Counseling requirement for accepting high-cost home loans: the Home Ownership and Equity Protection Act (HOEPA) and its implementing regulations impose a requirement on borrowers to complete counseling with a HUD-approved counselor before accepting a loan that is a high-cost mortgage under HOEPA (12 C.F.R. §1026.32(a)(5)). Counseling requirement for accepting negative amortization loans: first-time borrowers must complete counseling with a HUD-approved counselor before accepting a negative amortization loan (12 C.F.R. §1026.36(k)). Counseling requirement for FHA HECMs: a borrower who is seeking a reverse mortgage from the FHA must complete counseling with a HUD-approved counselor.

The Ability to Repay Rule

The ATR Rule is very broad; it is applicable to any consumer credit transaction secured by a dwelling, including any real property attached to a dwelling (12 C.F.R. §1026.43(a)). The Rule applies to: First- and subordinate-lien loans Loans secured by a borrower's principal residence Loans secured by non-owner-occupied residences (i.e., second homes and investment properties) Refinances Closed-end home equity loans The only transactions that are not subject to the requirements of the ATR Rule are open-end home equity plans, reverse mortgage loans, bridge loans with terms of 12 months or less, construction loans, and loans made by a housing finance agency. Loans made in compliance with the ATR Rule that do not meet the product feature prerequisites for a qualified mortgage (discussed next) are known as non-qualified mortgages. The CFPB wrote the ATR Rule with more flexible standards than the QM Rule so that creditors would have the option of assuming the greater risks that come with making loans that are not qualified mortgages.

Verification of Information

The ATR Rule requires verification of all information used by the creditor in determining the consumer's ability to repay, using "reasonably reliable third-party records" (12 C.F.R. §1026.43(c)(3)). The Rule provides numerous examples of records that creditors may use to verify the income of a loan applicant, including: Tax return transcripts issued by the IRS Copies of federal or state tax returns filed by the consumer Payroll statements Financial institution records Records from the consumer's employer Records from federal, state, or local government agencies showing benefits or entitlements received by the consumer Receipts from the consumer's use of check-cashing services or of a funds transfer service While the Rule requires written verification of most information using third-party documents, it allows creditors to verify the employment status of a loan applicant orally, if they prepare a written record of verification that an employer provides over the phone (12 C.F.R. §1026.43(c)(3-4)).

Compliance with the E-Sign Act

The Act applies to transactions that affect or are involved in interstate or foreign commerce. It states that a signature, contract, or other record related to a transaction cannot be denied its legal effect, validity, or enforceability solely because it is in electronic form or because an electronic signature or record was used in its formation. As previously stated, electronic records may be used as long as the consumer has affirmatively consented and has not withdrawn that consent. Before obtaining a consumer's consent, financial institutions must provide a clear and conspicuous statement informing the consumer of all of the following: Any right or option to have the record provided or made available on paper or in a non-electronic form, how the consumer may request a paper copy, and any applicable fees The right to withdraw consent, including applicable conditions, consequences, and fees A description of procedures that the consumer must use to withdraw consent Whether consent applies only to the particular transaction that triggered the disclosure or to specified categories of records that may be provided over the course of the relationship A description of procedures for the consumer to update information necessary to be contacted electronically The hardware and software requirements for access to and retention of electronic records Electronic consent from a consumer must be in a manner that reasonably shows that the consumer can access information in the electronic form that will be used. If a consumer later withdraws consent, the validity, enforceability, or legal effect of an existing contract cannot be affected. If the consumer is using electronic means to open an account or request a service, disclosures must be provided before the account is opened or service is requested (15 U.S.C. §7001(c)(5)).

CFPB Supervision and Examination

The Consumer Financial Protection Bureau has the authority to conduct investigations in order to determine whether any person has engaged, or is engaging, in conduct that is in violation of federal law. Investigations may be conducted jointly in cooperation with other regulators. They may include subpoenas, as well as investigative demands for testimony, responses to written questions, or other documents or materials. The CFPB also has the authority to bring administrative enforcement proceedings or civil actions in federal district court. The CFPB uses three principles in its Supervision and Examination Manual that guide its examination process. [1] These principles are: Focus on consumers: when evaluating an entity's policies and practices, the CFPB will focus on the risks that the entity presents to consumers. The CFPB states an expectation that institutions will offer products and services in accordance with federal law, and will maintain effective control systems to manage and ensure compliance. A primary focus of all CFPB examinations will be the institution's ability to detect, prevent, and correct practices that pose a significant risk of violating the law and harming consumers. Data-driven examination: supervision is based on analysis of available data about an entity's activities, operations in a given market, and consumer risk. CFPB supervision staff, made up of examiners and analysts, will employ data from a variety of sources, including information obtained directly from the entity and data gathered through observation during the examination process. In addition, examiners may use information obtained from various divisions within the CFPB, the Office of Fair Lending and Equal Opportunity, the Consumer Response Center, and offices meant to specifically address the special needs of various populations, such as students, service members, older Americans, and the otherwise underserved. Information from state and federal regulators may also be collected, evaluated, and considered. Consistency: the CFPB is clear about its intent to supervise both depository institutions and non-depository consumer financial services companies - and to consistently apply and enforce standards for both types of entities. The CFPB will use the same procedures for all entities that offer the same types of consumer financial products and/or services, or that engage in the same activities. Even so, the CFPB emphasizes that its goal of maintaining consistency does not necessarily mean that supervisory expectations will be uniform for all entities; for example, the CFPB recognizes that compliance and oversight systems are managed very differently between large, complex entities and smaller ones, and that expectations must be adjusted accordingly.

Department of Housing and Urban Development

The Department of Housing and Urban Development (HUD) is one of the 14 executive departments that is part of the President's Cabinet. HUD was established as a Cabinet-level office in 1968 with the adoption of the Housing and Urban Development Act. Today, HUD states that its mission is: "...to create strong, sustainable, inclusive communities and quality affordable homes for all."[1] Its commitment to affordable housing includes meeting the need for affordable rental homes and to establish communities that are free from discrimination. While the CFPB now has authority over most federal mortgage laws and regulations, HUD is still responsible for writing rules for the implementation of the Fair Housing Act and does not share this authority with any other federal agency. HUD's Office of Fair Housing and Equal Opportunity enforces the Fair Housing Act by protecting consumers from discrimination based on race, color, religion, sex, national origin, disability, and familial status. When HUD brings enforcement actions and is not able to satisfactorily resolve them, the agency refers these cases to the Department of Justice (DOJ). The DOJ has authority to bring actions for the enforcement of civil rights laws, such as the Fair Housing Act. In December 2012, the CFPB and the Department of Justice entered a Memorandum of Understanding regarding the coordination of enforcement of federal fair lending laws, including the Fair Housing Act.

Overview of the CFPB

The Dodd-Frank Act brought many changes to transactions between consumers and providers of financial products and services. One change that has sparked the most attention from consumers, politicians, and regulated entities is the creation of the Consumer Financial Protection Bureau (CFPB). Established under Title X of the Dodd-Frank Act, the CFPB officially opened its doors on July 21, 2011. The CFPB inherited its authority from the transferor agencies listed below: The Board of Governors of the Federal Reserve The Federal Deposit Insurance Corporation (FDIC) The National Credit Union Administration (NCUA) The Office of the Comptroller of Currency (OCC) The Office of Thrift Supervision (OTS) The Department of Housing and Urban Development (HUD) The Federal Trade Commission (FTC) These agencies have not transferred all of their authority to the CFPB. Other than the Office of Thrift Supervision, which was eliminated under the Dodd-Frank Act, the other agencies listed will continue to act as regulators for matters that are not related to "consumer financial protection functions." The law defines consumer financial protection functions as: The authority to write rules, initiate rulemaking, or issue orders or guidelines pursuant to federal consumer financial laws Examination authority (12 U.S.C. §5581(a)) It should be noted that even with regard to consumer financial protection issues, the transferor agencies have limited advisory authority as prudential regulators. For example, during rulemaking proceedings, the CFPB must consult with the "...appropriate prudential regulators...regarding consistency with prudential, market, or systemic objectives administered by such agencies..." (12 U.S.C. §5512(b)(2)(B)). In the case of depository institutions, prudential regulators are the federal banking agencies, including the OCC, FDIC, and the Federal Reserve (12 U.S.C. §5481(24)). The CFPB inherited a significant amount of its authority from the Federal Reserve Board. Although the CFPB is established to exist as an "independent bureau" within the Federal Reserve System, the Dodd-Frank Act includes provisions ensuring that these agencies remain distinctly separate by providing that the Board of Governors of the Federal Reserve cannot: Intervene in any examination or any enforcement action before the CFPB Director Appoint, remove, or direct any CFPB officer or employee Merge or consolidate any functions or responsibilities of the CFPB with any division, office, or banks of the Federal Reserve, or Subject any rule or order of the CFPB to the review or approval of the Federal Reserve Board (12 U.S.C. §5492(c)(2)) The Dodd-Frank Act provides that a single director must serve as the head of the CFPB (12 U.S.C. §5491(b)). Appointed by the President and subject to Senate confirmation, the CFPB Director serves a five-year term, unless the President finds it necessary to remove him or her from the position as the result of "...inefficiency, neglect of duty, or malfeasance in office" (12 U.S.C. §5491(c)(3)).

Presumptions of Compliance

The Dodd-Frank Act creates a presumption of compliance that a creditor making a qualified mortgage has complied with ATR standards. The creation of this safe harbor was meant to ease creditor concerns over the tightened standards for assessing repayment ability. Qualified mortgages offer either: A conclusive presumption of compliance with the ability to repay requirements, or A rebuttable presumption of compliance with the ability to repay requirements The conclusive presumption of compliance is extended to qualified mortgages that are prime loans and are not higher-priced mortgage loans or subprime loans. This presumption means that if a prime loan fulfills qualified mortgage criteria, there will be a conclusive presumption that the creditor made a reasonable, good faith determination of the consumer's ability to repay. The rebuttable presumption of compliance is extended to higher-priced mortgage loans. This rebuttable presumption of compliance lowers the burden of proof for subprime borrowers who believe that a creditor failed to make a reasonable, good faith determination of their repayment ability. In order to successfully rebut the presumption of compliance, a consumer must prove that the creditor failed to make a reasonable and good faith determination of repayment ability.

The Electronic Signatures in Global and National Commerce Act

The E-Sign Act (15 U.S.C. §7001 et seq.) is a federal law enacted by Congress in June of 2000. The general goal of the law is to address the validity of documents, records, and signatures that are in electronic form. While many states have their own laws in place regarding electronic documentation and signatures, the E-Sign Act applies to interstate and foreign commerce. The Act allows for the use of electronic records to satisfy any law, regulation, or rule that requires information to be provided in writing, as long as the consumer affirmatively consents to electronic delivery (15 U.S.C. §7001(c)). In essence, the Act states that an electronic record or electronic signature cannot be declared invalid simply because it is given electronically, rather than on paper or in other forms. Before moving further, it is important to understand the following terms as they are defined by the E-Sign Act: Electronic record: a contract or other record that is created, generated, sent, communicated, received, or stored by electronic means Electronic signature: an electronic sound, symbol, or process that is attached to or logically associated with a contract or other record, and that is executed or adopted by a person with the intent to sign the record Information: data, text, images, sounds, codes, computer programs, software, databases, or similar Record: information that is inscribed on a tangible medium or that is stored in an electronic medium that may be retrieved The E-Sign Act (15 U.S.C. §7001 et seq.) is a federal law enacted by Congress in June of 2000. The general goal of the law is to address the validity of documents, records, and signatures that are in electronic form. While many states have their own laws in place regarding electronic documentation and signatures, the E-Sign Act applies to interstate and foreign commerce. The Act allows for the use of electronic records to satisfy any law, regulation, or rule that requires information to be provided in writing, as long as the consumer affirmatively consents to electronic delivery (15 U.S.C. §7001(c)). In essence, the Act states that an electronic record or electronic signature cannot be declared invalid simply because it is given electronically, rather than on paper or in other forms. Before moving further, it is important to understand the following terms as they are defined by the E-Sign Act: Electronic record: a contract or other record that is created, generated, sent, communicated, received, or stored by electronic means Electronic signature: an electronic sound, symbol, or process that is attached to or logically associated with a contract or other record, and that is executed or adopted by a person with the intent to sign the record Information: data, text, images, sounds, codes, computer programs, software, databases, or similar Record: information that is inscribed on a tangible medium or that is stored in an electronic medium that may be retrieved

Programs Offered by HUD

The FHA provides insurance to FHA-approved lenders to protect lenders against losses in the event of borrower default. In order to qualify for FHA approval, lenders must meet certain requirements. The loans themselves must also meet certain conditions in order to qualify for FHA insurance. There are a number of FHA loan programs. These include: Single-Family Insurance (Section 203(b)) Rehab Loan Insurance (Section 203(k)) FHA Home Equity Conversion Mortgages (HECMs) Adjustable-Rate Mortgages (ARMs) (Section 251) Energy-Efficient Loan Program Graduated Payment Mortgage (Section 245) FHA Condominiums Growing Equity Mortgages (Section 245(a)) Manufactured Homes

MAP Rule Compliance

The FTC created the MAP Rule's list of prohibited acts and practices based on trends that it has observed in the mortgage marketplace and that it has attempted to deter with enforcement actions. The FTC and the CFPB have authority to investigate alleged violations and to bring enforcement actions. When violations of rules such as the MAP Rule are ongoing and egregious, the agencies can refer the matter to the Attorney General at the Department of Justice for criminal prosecution.

Information and Persons Protected by the GLB Act

The GLB Act applies to "nonpublic personal information," which the law defines as "...personally identifiable financial information provided by a consumer to a financial institution; resulting from any transaction with the consumer or any service performed for the consumer; or otherwise obtained by the financial institution." (15 U.S.C. §6809(4)). Examples of "personally identifiable information" include: Information provided by a consumer to obtain financial products or services, including information provided to obtain a loan Account balance and history The fact that an individual is or has been a customer of a financial institution Information provided by a consumer to a financial institution or its agent in relation to collecting on or servicing a loan Information obtained from an Internet "cookie" Information from a consumer report The GLB Act protects the privacy of "nonpublic personal information" that is provided by individual "consumers" and "customers." The law establishes different standards of privacy protection for consumers and customers, with the strictest standards applying to relationships with customers. In the context of mortgage lending, a customer relationship and the requirements for protecting customer information exist when: A customer completes an application for a loan A customer obtains a loan from a lender or mortgage broker A financial institution obtains the servicing rights for a loan The GLB Act does not extend protection to publicly available information, which includes: Information in government real estate records Information from a telephone book or information included on a public and unrestricted web site Listed telephone numbers provided by customers

Disclosures and Notifications Required by the GLB Act

The GLB Act requires financial institutions always to notify customers, and sometimes to notify consumers, of their policies and practices regarding the collection of nonpublic personal information and the sharing of it with third parties. Notices must include information on safeguarding the privacy of nonpublic personal information. If financial institutions plan to share consumer or customer information, they must also provide notice of the right to opt-out of the sharing of information. Following are the requisite notices under the GLB Act.

Scope of the MAP Rule

The MAP Rule applies to mortgage lenders, brokers, servicers, and others who engage in mortgage advertising, such as real estate agents or advertising agencies. The Rule does not apply to banks, savings and loan institutions, federal credit unions, or other entities that are excluded from the FTC's jurisdiction. The provisions of the MAP Rule are in addition to the advertising restrictions found in other laws and regulations, including the Truth-in-Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), and other state-specific requirements.The MAP Rule applies to "commercial communications," which it defines as any written or oral statement, illustration, or depiction, in English or any other language, designed to effect a sale or to create interest in purchasing goods or services, regardless of the medium (12 C.F.R. §1014.2). The definition of "commercial communications" also applies to information that a lender, mortgage broker, real estate agent, or other mortgage or real estate professional would provide to a marketing company, such as: Telemarketing scripts and training materials On-hold and up-sell scripts Scripts for infomercials Promotional items Web pages The Rule prohibits the misrepresentation of terms related to "mortgage credit products," which it defines as any form of credit that is secured by real property or a dwelling, and that is offered or extended to a consumer primarily for personal, family, or household purposes (12 C.F.R. §1014.2). A dwelling is defined to include not only a residential structure of one to four units, but also condominium and cooperative units, mobile homes, manufactured homes, and trailers.

Prohibited Misrepresentations

The MAP Rule prohibits material misrepresentations, whether they are made expressly or by implication, in any commercial communication regarding any term of any mortgage credit product (12 C.F.R. §1014.3). When it published the MAP Rule in its final form, the FTC stated that, in determining whether an advertisement is deceptive, it will rely on the "elements of deception" set forth in the FTC's Deception Policy Statement of 1984. Under the 1984 Policy Statement, an act or practice is deceptive if: There is a representation, omission, or practice that is likely to mislead a consumer acting reasonably under the circumstances, and That representation, omission, or practice is material to consumers (76 FR 43828) The Rule outlines a long list of common mortgage advertising misrepresentations that are false or deceptive, therefore violating the MAP Rule. This listing is not meant to be all-encompassing, but instead to clarify and provide guidance in determining whether a statement is a deceptive misrepresentation under the Rule. The MAP Rule prohibits any person from obtaining or attempting to obtain a waiver from any consumer which causes them to waive any of the protections extended by the Rule (12 C.F.R. §1014.4).

Temporary Qualified Mortgage Standards

The QM Rule also establishes standards for a temporary category of qualified mortgages, available only for a specified period of time. The rules for temporary qualified mortgages are available for covered transactions consummated on or before January 10, 2021 (12 C.F.R. §1026.43(e)(4)(iii)). Mortgages that fall into the temporary qualified mortgage category are those that meet all of the following standards: The loan has all product features of a qualified mortgage The term does not exceed 30 years The points and fees for the mortgage do not exceed the 3% cap (or other cap, if applicable) Qualified mortgages made under the temporary category do not need to satisfy the exact underwriting requirements laid out in the permanent QM definition. A loan may satisfy the temporary QM requirements if it is eligible for one or more of the following: Purchase or guarantee by Fannie Mae or Freddie Mac Insurance by the FHA Guarantee by the VA or USDA Insurance by the Rural Housing Service Actual purchase or guarantee by a GSE is not required for loans to meet temporary QM standards (12 C.F.R. §1026.43(e)(4)). The most evident distinction between the permanent and temporary qualified mortgage standards is that qualified mortgages made under the temporary category do not have to meet the 43% DTI standard.

The Qualified Mortgage Rule

The QM Rule defines a qualified mortgage by identifying lending terms that these residential mortgage loans may not include, and by establishing underwriting practices that must be associated with their origination. A qualified mortgage may not include: A term that is longer than 30 years Points and fees that exceed a specific percentage of the total loan amount The cap is generally 3%, but varies slightly based on the loan amount Negative amortization Balloon payments (with some specific exceptions) Ability to defer repayment of principal (e.g., interest-only loans) In order to originate a qualified mortgage, the consumer's ability to repay must be based on: A maximum debt-to-income ratio of 43% Verification of income and assets Calculation of regular and substantially equal periodic payments, using: The maximum interest rate that may apply during the first five years of the loan, measured from the date on which the first periodic payment is due, and Periodic payments that will repay the principal balance that is outstanding after the interest rate adjusts to the maximum rate applicable during the loan's first five years, and the loan amount over the term of the loan

Prohibitions of the Telemarketing Sales Rule

The Telemarketing Sales Rule and its provisions create a number of prohibited practices for sales and telemarketing professionals. Several important points which can impact mortgage professionals include prohibitions on the following abusive practices: Use of threats, intimidation or profane language Placing calls to consumers before 8:00 a.m. or after 9:00 p.m. - it is important to consider the local time of the consumer Making false or misleading statements Requiring payment of a fee in advance of obtaining a loan or other extension of credit Charging a consumer for goods or services without consent Failing to transmit a telephone number so that it can be read by a call recipient's Caller ID Initiating a call to a consumer listed on the Do-Not-Call Registry

Definition of Terms Related to the GLB Act

The following definitions, found in Regulation P, are important to know in order to understand the provisions of the GLB Act (12 C.F.R. §1016.3). Affiliate: any company that is controlled by or is under common control with another company. Consumer: defined in Regulation P as "...an individual who obtains, from a financial institution, financial products or services which are to be used primarily for personal, family, or household purposes" (12 C.F.R. §1016.3(e)). The rule clarifies that consumers are individuals who conduct isolated transactions with a financial institution, such as arranging for a wire transfer, using an ATM, or cashing a check. Customer: a consumer who has a "customer relationship" with a financial institution, and who has greater protections under the GLB Act as a result of this relationship. Customer relationship: a customer relationship exists when a consumer has a continuing relationship with a financial institution. A customer relationship exists when a consumer and a financial institution: -Enter an agreement for the consumer to obtain a loan -Enter into an agreement or understanding for the brokering or arranging of a home mortgage loan -Have an agreement for the financial institution to service the consumer's loan (12 C.F.R. §1016.3(j)(2)(i)) Financial institution: in Regulation P, the term is broadly defined as "...any institution the business of which is engaging in financial activities..." (12 C.F.R. §1016.3(l)(1)). These institutions are defined by Regulation P to include nonbank mortgage lenders, mortgage brokers, and mortgage loan originators, because their activities constitute financial activities (12 C.F.R. §1016.3(l)(3)(ii)(K)). Financial activities: under Regulation P, "providing real estate settlement services" is given as an example of a financial activity (12 C.F.R. §1016.3(l)(3)(ii)(J)). Nonpublic personal information: Regulation P defines the term, "nonpublic personal information" as personally identifiable financial information provided by a consumer to a financial institution for a financial transaction or service or personal financial information otherwise obtained by a financial institution (12 C.F.R. §1016.3(p)(1)).

Payment Calculations

The general rule for making payment calculations in compliance with the ATR Rule is that the payments must be calculated using: The fully-indexed rate or the introductory interest rate for an ARM, whichever is greater, and Monthly, fully-amortizing payments that are substantially equal The fully-indexed rate is calculated by adding together the index and the margin in effect at the time of consummation. The margin is expressed in percentage points, and is selected by the creditor. The creditor also chooses the index, which may be one of several benchmarks, such as the LIBOR or the Treasury Bill index. Of course, creditors cannot know with absolute certainty what the index will be at the time of consummation. They are therefore allowed to use a period of time, referred to as the look-back period, to identify the index value that will be used to determine the fully-indexed rate. The look-back period will be identified in the proposed lending agreement, and it defines a point in time at which the creditor will identify the index value used to calculate interest rate adjustments. The most common look-back period is 45 days. ARMs often include periodic interest rate caps and lifetime caps to limit increases in the interest rate. When calculating the fully-indexed rate, creditors are not allowed to consider periodic rate caps; they are, however, permitted to consider lifetime caps. By requiring consumers to qualify for a loan based on the fully-indexed rate, creditors are forced to base lending decisions on a consumer's ability to make the larger payments that they will face when the rate for the loan resets and payments are calculated at a higher interest rate. The purpose of this requirement, and the requirement to make substantially equal amortizing payments, is to prevent consumers from securing loans that they are unable to pay when an artificially low introductory rate expires and more expensive payments become due (12 C.F.R. §1026.43(c)(5)).

Federal Consumer Financial Laws and Enumerated Consumer Laws

The law instructs the CFPB to offer its protection under the provisions of "federal consumer financial laws" (12 U.S.C. §5491(a)). These laws include those listed in Title X of the Dodd-Frank Act as enumerated consumer laws. The "enumerated consumer laws" include all of the following: The Alternative Mortgage Transaction Parity Act (AMTPA) Section 626 of the Omnibus Appropriations Act The Interstate Land Sales Full Disclosure Act Limited provisions of the Federal Deposit Insurance Act The Fair Debt Collections Practices Act (FDCPA) The Fair Credit Billing Act (FCBA) The Consumer Leasing Act (CLA) The Equal Credit Opportunity Act (ECOA) The Fair Credit Reporting Act (FCRA) The Home Mortgage Disclosure Act (HMDA) The Home Ownership and Equity Protection Act (HOEPA) The Real Estate Settlement Procedures Act (RESPA) The Truth-in-Lending Act (TILA) The Truth-in-Savings Act (TISA) The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act) Title V of the Gramm-Leach-Bliley Act (GLB Act) The Electronic Fund Transfer Act (EFTA) The Homeowners Protection Act (HPA)

GLB Act Overview

The purpose of the privacy provisions of the GLB Act (15 U.S.C. §6801 et seq.) is to ensure that financial institutions, including mortgage brokers and lenders, protect nonpublic personal information of consumers by: Advising consumers of the financial institution's policies with regard to the use and exchange of personal information Offering consumers the opportunity to limit the use and exchange of their personal information Creating a security program to protect personal information from unauthorized release and disclosure The privacy provisions are found in Title V, Subtitle A of the Act.

Initial Privacy Notice

The requirements for the initial privacy notice differ for consumers and customers. Financial institutions are not required to provide consumers with a privacy notice unless they intend to share the consumer's information with nonaffiliated third parties. Financial institutions must always provide customers with a conspicuous privacy notice in writing or in electronic form that clearly describes the financial institution's practice of sharing nonpublic personal information with affiliates and third parties. The notice must specify the types of information shared and the types of affiliated and nonaffiliated parties that will receive the information. The initial privacy notice to customers is due at the time the customer relationship is established (12 C.F.R. §1016.4(a)(1)).

Exceptions to the Do-Not-Call Provisions

The requirements of the Telemarketing Sales Rule and its provisions do not apply if a consumer has an established relationship with a mortgage professional. In the case of an established relationship, a mortgage professional is permitted to place calls to customers, even if their phone numbers are on the Do-Not-Call Registry. A critical component to this exception is the law's definition of an established business relationship. An established business relationship is a relationship between a seller and a consumer based on a financial transaction that they have shared within the 18-month period that immediately precedes any sales call. Additionally, mortgage professionals are permitted to contact consumers for a period of three months following a relationship that is based on an inquiry by the consumer. Regardless of the existence of an established business relationship, if a consumer specifically asks a mortgage professional not to contact them, the request must be honored.

Basis for Determining Repayment Ability

There are eight factors that creditors are required to consider when evaluating a consumer's ability to repay a loan according to its terms. The eight factors that must serve as the basis for this determination include the consumer's: Current or reasonably expected income or assets, other than the value of the dwelling and any real property attached to it Employment status, if the creditor is relying on income from employment to determine repayment ability Monthly payments on the loan, calculated in accordance with the provisions of the Rule The amount of the consumer's payments on any simultaneous loan known to the creditor Monthly payments for mortgage-related obligations, such as homeowners' insurance Debt obligations, such as alimony and/or child support Monthly debt-to-income ratio or residual income, calculated in accordance with provisions of the Rule Credit history In the Official Interpretations, the CFPB emphasizes that "current or reasonably expected income" must be verifiable, and that additional income (such as bonus income) must be verified with records showing past amounts (12 C.F.R. §1026.43(c)(2)).

The Consumer Financial Protection Bureau

Until July 2011, mortgage professionals were subject to regulations issued by the Federal Reserve, the Department of Housing and Urban Development, and the Federal Trade Commission. The Consumer Financial Protection Bureau is now in charge of implementing and enforcing most of the provisions of federal lending laws that relate to protecting consumers while they are shopping for, securing, and paying off mortgages.

Penalties for Violations of the Telemarketing Sales Rule

Violations of the Telemarketing Sales Rule are regarded as unfair and deceptive trade practices under the Federal Trade Commission Act. Penalties are $43,280 for each violation, and when violations continue, each day is considered a separate violation. Under certain circumstances, a company which violates telemarketing provisions may be exempt from liability. The FTC considers whether the mortgage professional has established procedures for complying with the provisions, trains its personnel on the procedures and regularly monitors compliance.

Filing Complaints with the CFPB

When it established the CFPB, the Dodd-Frank Act required the CFPB Director to create a unit enabling a "...toll-free telephone number, a website, and a database...to facilitate the centralized collection of, monitoring of, and response to consumer complaints regarding consumer financial products or services" (12 U.S.C. §5493(b)(3)). In establishing a Consumer Response Unit, the law requires the CFPB to coordinate its efforts with the Federal Trade Commission (FTC), as well as other federal and state agencies. The Consumer Response Unit must submit an annual report to Congress, due no later than March 31 of each year. This report must outline the number, type, and resolution of complaints, and must reflect data shared with the FTC and other federal and state agencies. These reports are published online. The CFPB's consumer complaint database accepts complaints related to mortgages, debt collection, credit reporting, bank accounts, credit cards, money transfers, payday loans, student loans, and vehicle loans. Consumers may submit complaints online, or by phone, fax, or mail. The CFPB then screens complaints and uses a secure web portal to forward them to the appropriate company. Companies are asked to respond within 15 days, but may indicate that a response is "in progress" when one is not ready. A final response is due within 60 calendar days. Company responses are forwarded to the CFPB and to consumers; after a consumer's receipt of a response, he or she may provide further feedback to the CFPB. While waiting for a response, consumers may check online or by telephone to obtain a status report or to provide additional information. The CFPB uses its "subject matter experts" to help with certain complaints. The CFPB began accepting mortgage complaints in January 2012. Not surprisingly, the majority of complaints (64%) relate to the inability of consumers to make their mortgage payments. The second most common type of mortgage complaint relates to loan servicing and escrow accounts.