Small creditors operate under different rules - CFPB issues rule on access to mortgage credit in rural areas (media release re-post)

FOR IMMEDIATE RELEASE:September 21, 2015 CONTACT:Office of CommunicationsTel: (202) 435-7170 CONSUMER FINANCIAL PROTECTION BUREAU FINALIZES RULE TO FACILITATE ACCESS TO CREDIT IN RURAL AND UNDERSERVED AREAS Bureau Extends Provisions to Cover More Community Banks, Credit Unions, and Other Creditors Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today finalized several changes to its mortgage rules to facilitate responsible lending by small creditors, particularly in rural and underserved areas. The new rule, which was proposed in January, will increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas, and gives small creditors time to adjust their business practices to comply with the rules. “The financial crisis was not caused by community banks and credit unions, and our mortgage rules reflect the fact that small institutions play a vital role in many communities,” said CFPB Director Richard Cordray. “These changes will help consumers in rural or underserved areas access the mortgage credit they need, while still maintaining these important new consumer protections.” In January 2013 and May 2013, the CFPB issued several mortgage rules, most of which took effect in January 2014. Among these rules, the Ability-to-Repay rule protects consumers from irresponsible mortgage lending by requiring that lenders generally make a reasonable and good-faith determination that prospective borrowers have the ability to repay their loans. Under the Ability-to-Repay rule, a category of loans called Qualified Mortgages prohibit certain risky loan features for consumers and are presumed to comply with ability-to-repay requirements. There are a variety of provisions in the rules that affect small creditors, as well as small creditors that operate predominantly in rural or underserved areas. For instance, a provision in the Ability-to-Repay rule extends Qualified Mortgage status to loans that small creditors hold in their own portfolios, even if consumers’ debt-to-income ratio exceeds 43 percent. Small creditors that operate predominantly in rural or underserved areas can originate Qualified Mortgages with balloon payments even though balloon payments are otherwise not allowed with Qualified Mortgages. Similarly, under the Bureau’s Home Ownership and Equity Protection Act rule, such small creditors can originate high-cost mortgages with balloon payments. Also, under the Bureau’s Escrows rule, eligible small creditors that operate predominantly in rural or underserved areas are not required to establish escrow accounts for higher-priced mortgages. Since issuing the mortgage rules, the CFPB has continued to monitor the mortgage market and seek public feedback. The changes finalized today reflect the Bureau’songoing study of the market and extensive outreach to stakeholders including consumer advocates and industry groups. Today’s final rule will: Expand the definition of “small creditor”: The loan origination limit for small-creditor status will be raised from 500 first-lien mortgage loans to 2,000 and will exclude loans held in portfolio by the creditor and its affiliates. Include mortgage affiliates in calculation of small-creditor status: The final rule does not change the current asset limit for small-creditor status, which is set at less than $2 billion (adjusted annually) in total assets as of the end of the preceding calendar year. However, under the new rule the assets of the creditor’s mortgage-originating affiliates are included in calculating whether a creditor is under the limit. Expand the definition of “rural” areas: In addition to counties that are considered to be “rural” under the CFPB’s current mortgage rules, today’s final rule expands the definition of “rural” to include census blocks that are not in an urban area as defined by the Census Bureau. The rule adds two new safe harbors for determining whether a property location meets the definition of rural. A creditor will be able to rely on an automated address look-up tool available on the Census Bureau’s website or on a new automated tool that will be provided on the Bureau’s website. The rule maintains the current safe harbor for creditors who choose to rely on the county lists available on the Bureau’s website. Provide grace periods for small creditor and rural or underserved creditor status: Creditors that exceed the origination limit or asset-size limit in the preceding calendar year will be allowed to operate, in certain circumstances, as a small creditor with respect to mortgage transactions with applications received prior to April 1 of the current calendar year. Today’s final rule creates a similar grace period for creditors that no longer operated predominantly in rural or underserved areas during the preceding calendar year. Create a one-year qualifying period for rural or underserved creditor status: The final rule adjusts the time period used in determining whether a creditor is operating predominately in rural or underserved areas, from any of the three preceding calendar years to the preceding calendar year. Provide additional implementation time for small creditors: Eligible small creditors are currently able to make balloon-payment Qualified Mortgages and balloon-payment high-cost mortgages regardless of where they operate, under a temporary exemption scheduled to expire on January 10, 2016. Today’s final rule extends that period to include balloon-payment mortgage transactions with applications received before April 1, 2016, giving creditors more time to understand how any changes will affect their status, and to adjust their business practices. Today’s final rule is being adopted as proposed, with several technical changes and clarifications. The final rule, including its changes and clarifications, will take effect January 1, 2016. A copy of the final rule is available at:http://files.consumerfinance.gov/f/201509_cfpb_amendments-relating-to-small-creditors-and-rural-or-underserved-areas-under-the-truth-in-lending-act-regulation-z.pdf  ###

CFPB goes after debt-relief outfit for charging up-front fees, says World Law Group took $67 mil from consumers and didn't deliver

9-15-2015 PRESS RELEASE FROM THE CONSUMER FINANCIAL PROTECTION BUREAU:

FOR IMMEDIATE RELEASE: September 15, 2015 CONTACT: Office of Communications Tel: (202) 435-7170 CONSUMER FINANCIAL PROTECTION BUREAU SUES WORLD LAW GROUP FOR CHARGING ILLEGAL FEES AND MAKING FALSE PROMISES IN DEBT-RELIEF SCHEME  Lawsuit Names Individuals Responsible for Bilking $67 million from 21,000 Consumers WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau announced that it has obtained a preliminary injunction against World Law Group and its senior leaders for running a debt-relief scheme that charged consumers exorbitant, illegal upfront fees. The Bureau alleges the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers’ debts. World Law is alleged to have taken $67 million from at least 21,000 consumers before providing any debt-relief services. The Bureau has obtained an order in U.S. District Court that halts World Law’s operations and freezes defendants’ assets while the case is pending. “We took action today against World Law Group for an alleged debt relief scheme that lured consumers with false promises of help from lawyers and collected millions in illegal upfront fees,” said CFPB Director Richard Cordray. “We are seeking to put an end to this scheme and prevent more consumers from being harmed.” The Bureau’s lawsuit names Derin Scott, David Klein, and Bradley James Haskins, who control World Law Group. The lawsuit alleges that the defendants operate through an interrelated maze of companies, including Orion Processing, LLC, d/b/a World Law Processing, WLD Credit Repair, and World Law Debt; Family Capital Investment & Management LLC a/k/a FCIAM Property Management; World Law Debt Services, LLC; and World Law Processing, LLC. The companies comingle funds and share functions, employees, and office locations to operate the debt-relief scheme. According to the complaint, World Law promised to help consumers reduce their debts using a “team of attorneys,” including “local attorneys,” that would provide legal representation and negotiate debt settlements directly with consumers’ creditors. World Law allegedly told consumers to stop paying their debts and instead make a single monthly payment to the company, which its lawyers would use to negotiate debt settlements with creditors. According to the complaint, World Law unlawfully kept many of these payments as fees before providing debt-relief services. As a result, consumers paid millions of dollars in illegal fees and suffered additional harms, including being subjected to collection calls, lawsuits, late fees, and lower credit scores. The CFPB alleges that the World Law Group violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair, deceptive, or abusive acts and practices and the Telemarketing and Consumer Fraud and Abuse Prevention Act. Specifically, the Bureau alleges that World Law: Charged illegal upfront fees: According to the Bureau’s complaint, World Law charged consumers thousands of dollars in fees before providing debt-relief services. This is barred by the Telemarketing Sales Rule. In fact, the Bureau alleges that 99 percent of consumers who enrolled in World Law’s program paid illegal upfront fees. These unlawful fees include a $199 “initial fee” collected during the first three months of the program, an “attorney monthly service fee” of $84.95 per month, and “bundled legal service fees” ranging from 10 percent to 15 percent of the consumers’ outstanding debt balance, which are collected during the first 13 months of the program. Made false promises of legal representation: World Law promised that consumers would receive local legal representation and have their debts negotiated by an attorney. In reality, according to the Bureau, the defendants did not provide the promised legal representation. The Bureau alleges that consumers rarely, if ever, communicated with a lawyer and the vast majority of services provided  ̶  if services were provided at all  ̶  were debt-relief services provided by non-lawyers. The Bureau’s complaint is not a finding or ruling that the defendants have actually violated the law. The Court issued the preliminary injunction because it found that the Bureau is likely to prevail and that the public interest is served by granting the Order. The case will proceed until the court makes a final determination or the parties settle the matter. A copy of the CFPB’s complaint can be found at:http://files.consumerfinance.gov/f/201509_cfpb-complaint-orion-processing-llc-world-law.pdf The full text of the preliminary injunction orders entered by the court against the defendants is available here:http://files.consumerfinance.gov/f/201509_cfpb_preliminary-injunction-orion-processing-llc-world-law.pdf andhttp://files.consumerfinance.gov/f/201509_cfpb_preliminary-injunction-order-orion-processing-llc-world-law.pdf