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Case Law
Monday, September 13, 2021

The Consumer Financial Protection Bureau has filed a lawsuit accusing LendUp Loans, LLC of violating a 2016 consent order and deceiving tens of thousands of borrowers. The bureau previously ordered LendUp to pay $1.83 million in consumer redress and a $1.8 million civil penalty and to stop misleading consumers with false claims about the cost of loans and the benefits of repeated borrowing.

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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other considerationRegulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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Regulatory News
Monday, September 13, 2021

The Consumer Financial Protection Bureau (CFPB) has issued a consent order against an income share agreement (ISA) provider for allegedly mispresenting its product and failing to comply with federal consumer financial law that governs private student loans. The CFPB said the Virginia company falsely represented that the ISAs are not loans and failed to provide disclosures.

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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other considerationRegulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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… reports with incorrect information surged nearly 120% from 2019 to 2020, according to data from the Consumer Financial Protection Bureau.

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Analysts remained mostly positive about Wells Fargo Corp.’s WFC, -0.07% prospects with regulators after the bank was hit with a $250 million fine for not correcting practices it engaged in years ago. The bank did manage to satisfy a different regulator, closing a chapter in its retail banking scandal.
Height Capital Markets analyst Benjamin Salisbury said Friday the $250 million fine lodged by the Office of the Currency (OCC) against Wells Fargo amounted to a “speed bump on its road to regulatory recovery.”

The OCC said the megabank did not adhere to the terms of a 2018 consent order and issued a fresh consent order on Wells Fargo’s loss mitigation activities in its mortgage servicing operations. The OCC said the bank failed to establish an effective home lending loss mitigation program and restricted it from buying some third-party residential mortgage servicing until the issue is addressed.
But the order did not apply to WFC’s many other business lines, Salisbury noted.
“We view the limited scope of the new consent order and small fine as positive for WFC,” he said. “In our view, it is indicative that the bank has made progress on the wide range of regulatory concerns.”
Raymond James analyst David Long reiterated an outperform rating on the stock and said despite the setback from the OCC, it “does not change our view that Wells Fargo has the potential to become an ESG leader over time.”
The bank remains “laser-focused” on improving internal processes, and taking actions to eliminate unethical business practices and eliminating product sales goals and incentives, Long said. It’s also replaced most of its board and senior executive team, created new positions and reorganized its operations to better manage risk.
“Wells Fargo’s management has repeatedly indicated that the process to right the ship will not follow a straight line forward,” Long said in a research note published Friday. “The penalty and financial implications on its mortgage servicing business are manageable.”
J.P. Morgan Chase analyst Vivek Juneja was less optimistic on the bank’s regulatory progress. The OCC’s order did not address issues that have been raised around auto insurance remediation, which could also result in additional sanctions, he said.“This consent order will result in more expenses, likely some delayed foreclosures, increased demands on management time, and greater board involvement,” said Juneja, who has a neutral rating on Wells Fargo stock.
On a second regulatory matter, Wells Fargo said late Thursday a 2016 consent order from the Consumer Financial Protection Bureau (CFPB) regarding its retail sales practices has expired.  The CFPB lodged the order after it ruled the bank opened unauthorized deposit accounts for existing customers, enrolled consumers in online banking services and ordered and activated debit cards using consumers’ information without their knowledge or consent, among other charges.

Wells Fargo CEO Charles Scharf said the bank has since “done substantial work designed to ensure that the conduct at the core of the consent order — which was reprehensible and wholly inconsistent with the values on which this company was built – will not recur.”
Meanwhile, Wells Fargo continues to face a $1.95 trillion asset cap that was imposed by the Federal Reserve in the wake of the bank’s phony accounts scandal.
Wells Fargo’s stock has risen 47% so far in 2021 while the S&P 500 SPX, -0.77% has gained 19.6%. Shares rose fractionally on Friday despite losses in the broad equities market.

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Government controllers hit Wells Fargo with one more fine for neglecting to move adequately quick to remunerate clients who were survivors of the bank’s “unsafe or unsound” rehearses.
The Office of the Comptroller of the Currency, the financial controller inside the Treasury Department, told the outrage tormented bank it should pay $250 million since it couldn’t – — or wouldn’t — follow through on its guarantees. The discipline comes from a 2018 request that discovered issues with the bank’s auto and home loaning activities, including deficient danger the executives rehearses and ill-advised fines forced on clients.
At that point, as a component of a $1 billion settlement, the bank consented to work on its practices and pay compensation to clients. However, that is not happening sufficiently quick, as per the OCC.
“Wells Fargo has not met the requirements of the OCC’s 2018 action against the bank. This is unacceptable,” said Acting Comptroller Michael J. Hsu.
Notwithstanding the fine, the controller is confining the bank’s home loan business until it can resolve the issues.
Wells Fargo has attempted to get its home all together after a progression of outrages ejected five years prior. Since fall 2016, the bank has confessed to driving clients to pay pointless expenses and opening huge number of phony records in what the Federal Reserve has depicted as “widespread customer abuse.” In 2018 the Fed forced a cap on Wells Fargo’s resources — basically banishing the it from expanding its asset report until it tends to the consistence disappointments that prompted the embarrassments.
“The OCC’s actions today point to work we must continue to do to address significant, longstanding deficiencies,” said Charlie Scharf, Wells Fargo’s fourth CEO in five years, in a statement Thursday. “Building an appropriate risk and control infrastructure has been and remains Wells Fargo’s top priority.”
Wells Fargo shares were up marginally noontime Friday, flagging that financial backers were disregarding the OCC fine.
“Overall, I think this is a modest positive for the stock,” said Kyle Sanders, a senior analyst at Edward Jones. Sanders noted that the stock took a hit last week after media reports suggested bigger regulatory setbacks were around the corner. “For many investors, today’s announcement was less punitive than feared.”
Notwithstanding administrative cerebral pains, Wells wound up buried in a new PR bad dream, first dropping a famous loaning apparatus and afterward to some extent switching the choice following a month of shock from buyers and supporters.
In his assertion Thursday, Scharf declared a silver lining of sorts that might have mitigated financial backers. A different assent request focused on the bank’s business rehearses from 2016 — this one from the Consumer Financial Protection Bureau — has lapsed.
“We have done substantial work designed to ensure that the conduct at the core of the consent order — which was reprehensible and wholly inconsistent with the values on which this company was built — will not recur,” the CEO said.
Scharf, who has attempted to change the bank since he assumed control in 2019, said the bank had made some amazing progress, however isn’t free and clear.
“Our work to build the right foundation for a company of our size and complexity will not follow a straight line … That said, we believe we’re making significant progress, the work required is clear, and I remain confident in our ability to complete it,” he said.
Independently, the OCC said Friday that a consultation would be held Monday on account of three previous Wells Fargo leaders who have been blamed for “material failures in risk management” identified with the outrages.
“Wells Fargo’s Community Bank leadership caused the sales practices misconduct problem by setting unreasonable sales goals, placing severe pressure on employees to meet those goals, and maintaining deficient controls to prevent and detect the misconduct,” the OCC said in a news discharge. The OCC is looking for common punishments of $5 million each against the three people.

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The Consumer Financial Protection Bureau’s proposal to collect data on small-business loans has been over a decade in the making, but the fight over the rulemaking is just getting started.
The agency’s plan unveiled Sept. 1 has sparked industry concerns that the reporting regime will lead to more fair-lending enforcement and public shaming of banks for alleged discrimination against minority-owned businesses. Bankers are also worried the CFPB’s proposed criteria for which lenders report the data are too broad.
“I think this is a big fishing expedition looking for a needle in a haystack,” said Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association. “If the purpose is to find if there are bad actors out there from a discriminatory standpoint, I don’t think the solution is this massive new reporting requirement that everybody has to engage in.”

Community advocacy groups, meanwhile, say they are already planning to use the data to publicize widely which banks are doing a poor job of lending to Black- and Hispanic-owned small businesses.

“When the small-business loan data comes out and everyone sees the low level of lending [to minority communities], it’s going to be a train wreck,” said Al Piña, chairman of the Florida Minority Community Reinvestment Coalition.

The CFPB proposal would require any bank or fintech lender that originates 25 or more small-business loans a year to submit data the race, sex and ethnicity of the principal business owners, as well as which applicants are denied credit. Many lenders and even some governmental entities that have never heard of the CFPB would be subject. A final rule is expected to be published in mid-2023.
The rulemaking was required by the 2010 Dodd-Frank Act, but the drafting of the proposal proceeded at a snail’s pace for many years. The Dodd-Frank provision was modeled after the Home Mortgage Disclosure Act, which requires similar data to identify redlining patterns in home lending.
But banks are generally worried that there will not be sufficient protections on how the small-business data is used, and that the new reporting requirements will come as the CFPB ramps up fair-lending enforcement after a dearth of actions on redlining and other discriminatory practices during the Trump administration.
“How is the government going to use the data and also make sure it’s not misused?” said Ed Barry, CEO of the $2.1 billion-asset Capital Bank in Rockville, Maryland, which lends primarily to small businesses in the Washington, D.C., area. “It’s just a wealth of opportunity for the data to be abused to go after banks.”
The proposal comes against the backdrop of banks and fintechs having made nearly $800 billion in small- business loans during the pandemic. But amid the Biden administration’s broader push for racial equity, acting CFPB Director Dave Uejio has taken a tough stance on issues related to lending discrimination.
Uejio has focused on reports of banks prioritizing applications from preexisting customers for the Small Business Administration’s Paycheck Protection Program, saying such decisions had a “disproportionate negative impact” on minority-owned businesses.
Research released in September by the Brookings Institution found that Black business owners were more likely to be denied PPP loans, and that businesses in majority-minority neighborhoods had to wait longer on longer. Businesses with employees in white neighborhoods waited 24 days, compared with 31 days for businesses in majority-Black neighborhoods.
“It is immensely important to get a handle on whether underserved communities and minority-owned small businesses are getting reasonably priced credit or not,” said Josh Silver, senior advisor for policy at the National Community Reinvestment Coalition, who has been advocating for the data collection for 20 years.
Congress mandated that the CFPB collect data about small-business lending in Section 1071 of Dodd-Frank to “facilitate enforcement of fair lending laws and to help identify business and community development needs.”
Consumer groups said they already are planning a robust response to publicize the data widely on websites and in social media.
“The numbers are going to be terrible,” said Piña. “It will be a tsunami that will create an immediate impact on access to capital.”
Silver agreed.
“The data and public accountability is critically important so we know which lending institutions are doing a good job and which need to step up,” he said.
But bankers say the rule will be costly and painful. Some questioned how fair-lending laws would be applied to small-business borrowers. They noted HMDA reporting is linked with a clearer set of statutes related to redlining in the housing sphere.
“Unlike HMDA, where there are very clear fair-lending requirements, it is less clear what the law and regulatory doctrine is around fair lending to small businesses,” said Joe Thomas, president and CEO of the $837 million-asset Freedom Bank of Virginia in Fairfax. “It’s important that there are guidelines around how fair lending to small businesses will be evaluated as an important part of the rulemaking.”
The rulemaking is so contentious that the bureau dragged its feet for more than a decade and ultimately was forced to issue a proposal only after being sued in 2019 by the California Reinvestment Coalition.
“An overarching concern with this new rule is that all of this new data will be used for fair-lending supervision and enforcement by the government, as well as for litigation by the public,” said Richard Horn, co-managing partner at the law firm Garris Horn and a former CFPB senior counsel and special advisor.
Bankers are expected to ask the CFPB during the 90-day comment period for broad exemptions for small banks. Currently the proposed rule covers any financial institution that originates 25 or more small-business loans a year. An outline of the plan released last year by then-CFPB Director Kathy Kraninger considered exempting lenders with under $200 million of assets.
“Why bother with an exemption at all if they are going to set the bar that ridiculously low?” Camden Fine, president and CEO of Calvert Advisors, said of the current proposed 25-loan threshold.
Fine, a former head of the Independent Community Bankers of America, said Kraninger’s alternative approach “was better, but even that is very low by Dodd-Frank Act standards.”
“Community banks are the nation’s backbone when it comes to small business lending,” he said. “Is the administration trying to throttle small-business lending by setting such an absurdly low exemption threshold?
Consumer advocates had urged the CFPB to be consistent with the 2015 HMDA rule, which gave an exemption to lenders that originate fewer than 25 loans a year. But last year the Trump administration, citing regulatory burdens on small banks, raised the HMDA threshold to 100 loans.
Noah W. Wilcox, CEO of the $282.5 million-asset Grand Rapids State Bank in Minnesota, wrote on Twitter: “The CFPB proposed exemption from 1071 at 25 or fewer loans is a complete insult to the community banks that lead the nation in small business lending. We need a robust exemption and these businesses deserve it!”
Many bankers said small-business lending is a vehicle for solving income inequality and systemic racism. But they said the data collection could result in a lending pullback because of the high cost of compliance.
“It will be another big burden, another example of increasing compliance costs to solve a policy goal which may or may not be solvable through this,” said Barry at Capital Bank. He said he would need to hire more staff and potentially switch technology vendors to comply.
There also is the question of how the CFPB will use the data to compare small-business loans across thousands of very different financial institutions and small-business credit products. Bank lawyers say there are plenty of good reasons why loan applicants are denied even if those reasons are unclear from the data. Loan officers use discretion and subjectivity in making decisions about which small-business loans to approve.
“Each loan is like a work of art. It has to be underwritten based upon these idiosyncratic aspects of a small business: what industry it is in, what geography, what level of capital, what stage of growth,” said Thomas. “It is a complicated process to make an objective credit decision to help a small-business owner succeed or gain access to capital.

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In the light of recent extreme weather events striking U.S. states including Louisiana and California, the Federal Housing Administration (FHA) is reiterating to mortgage borrowers participating in FHA-sponsored programs certain relief measures and loss mitigation options which are available should they need assistance in light of natural disasters. This includes relief measures which are available to Home Equity Conversion Mortgage (HECM) program borrowers, according to a new informational notice released Friday by the agency.
Extreme weather conditions are not the only cause for these reminders, however, since the current state of hospitalizations across the country stemming from the COVID-19 pandemic have spurred additional action from the federal government, extending the presidentially-declared disaster area to the entire country due to the pandemic in addition to the weather events being experienced in specific parts of the nation.
Relief available to HECM borrowers
FHA reminds mortgagees and borrowers that those who are participating in the federally-sponsored reverse mortgage program who reside in Presidentially-declared Major Disaster Areas (PDMDAs) are eligible for loss mitigation options unique to their circumstances as HECM borrowers, according to FHA INFO #21-74 released on Friday.

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“FHA-insured Home Equity Conversion Mortgages (HECM) secured by properties located in a PDMDA, that are due and payable for reasons other than the death of the last surviving borrower or the end of a Deferral Period due to the death of an eligible non-borrowing spouse, are subject to a 90-day extension of HECM foreclosure timelines,” the notice reads.
The available relief likely required some refreshing in certain people’s minds, since FHA explains that many of the cited relief measures were outlined in FHA INFO #18-40 which was released in September of 2018, which outlined the same provision. Additionally, FHA also provides guidance concerning how a foreclosure action may proceed for a HECM borrower who resides in a PDMDA, and qualifies for the relevant relief.
“In PDMDAs, FHA provides HECM mortgagees an automatic 90-day extension from the date of the PDMDA foreclosure extension expiration date to commence or recommence a foreclosure action,” the notice reads.
Some of the provisions in this extension were initially outlined in 2018 in response to the devastation of Hurricane Maria in 2017, which struck the U.S. territory of Puerto Rico and affected the housing stability of HECM borrowers who reside there. That relief was extended one additional time later that year.
In 2019 as parts of the Bahamas and Southeastern U.S. were bearing the brunt of Hurricane Dorian, the Consumer Financial Protection Bureau (CFPB) released a guide for HECM borrowers affected by natural disasters. That guide succinctly detailed some of the unique challenges that reverse mortgage borrowers may face when confronted with issues stemming from areas affected by major disasters.
“After a natural disaster, reverse mortgage borrowers may experience damage to their home, unexpected expenses, and a sudden loss of income,” said Cora Hume of the Office for Older Americans at CFPB in an announcement of the guide. “All these things may make it difficult for them to comply with the loan requirements, which could lead to foreclosure.”
As certain pandemic relief recedes, White House takes a different approach
Earlier this summer, the White House encountered a major blow to its plan for extending certain moratoria related to housing when the United States Supreme Court upheld a ban on evictions handed down by the Centers for Disease Control and Prevention (CDC). By now aligning behind the presidential authority related to natural disasters, the Biden administration may have additional leeway to extend certain relief provisions to people facing housing insecurity in light of the pandemic, including for renters and mortgage borrowers.
“A major disaster is declared when natural disasters or other events are of such severity that it is beyond the combined capabilities of state and local governments to respond,” FHA describes in Friday’s informational notice. “FHA recognizes the difficulty facing many borrowers across the country during a pandemic when also impacted by recent hurricanes, wildfires, and other extreme weather events. This guidance is intended to provide clarity to industry partners to assist borrowers impacted by these disasters.”
Even if it may present a new tactic, FHA is correct in pointing out that recent difficulties related to extreme weather events may exacerbate the situations being faced by affected borrowers that are concurrently dealing with economic problems related to the pandemic. Hurricane Ida accounts for the second strongest such storm to hit the state of Louisiana in its history, and while the major metro area of New Orleans appears to be recovering, recent indications show that it may be a longer road to recovery for more rural areas of the state based on reporting at the New York Times.
Additionally, dry weather in northern parts of California have raised concerns about the spread of wildfires in and around Sacramento. Combinations of high winds, low humidity and warm temperatures have led to the declaration of a “red flag warning” by the National Weather Service, which will remain in effect at least until Monday, September 13.In previous California wildfires which occurred in late 2018, one reverse mortgage industry vendor stepped up to partner with a local church to mobilize support to provide financial relief to seniors who resided in the disaster area.

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