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Thursday, November 30, 2017

Sexual Harassment in the Workplace

QUESTION
Sexual Harassment issues are in the news. How can I ensure that my company is creating an environment of support for victims and following all legal requirements?

ANSWER
Handling complaints of sexual harassment the right way may keep employees from filing a case with the Equal Employment Opportunity Commission (EEOC) that investigates these types of complaints.

Best Practices on the proper handling of complaints are outlined below.

  • Understand what sexual harassment is. Sexual harassment is the unwelcome behavior of a sexual nature that is made a term or feature of an individual’s employment or creates a hostile work environment. A hostile work environment is the most common and can be physical, verbal or visual.
  • Create an environment of mutual respect among all employees. Leadership should lead by example and make it clear to all managers and employees that this type of behavior will not be tolerated.
  • A confidential process for reporting alleged harassment is critical. Investigators must be prompt and thorough. Even anonymous complaints must be investigated. Results of an investigation are confidential and should be released only on a “need to know” basis.
  • If allegations are found to be true, action should be taken in accordance with company policy and federal and state laws. Consequences should be administered fairly and consistently.
  • Leadership must make it clear that retaliation of the complainant will not be tolerated. Retaliation is upheld in more cases investigated by the EEOC than the facts of the initial harassment complaint.
  • Preventive training is key. Federal law requires managers in companies with 50 or more employees to take two hours of training within six months of becoming a supervisor, and at least once every two years. States may have more stringent guidelines. The company must keep records of all training.
  • Although not required by law, training for employees is encouraged. This will ensure a common understanding of prohibited behavior and the company’s commitment to a harassment-free environment.


Lenders Compliance Group® can provide training to managers and employees or assist with sexual harassment policies and investigative procedures. A good place to start would be to have us conduct our HR Tune-up!™, which provides an overview and action plan for remediation.

Kimberly Braman
Director/Human Resources Compliance
Lenders Compliance Group® 

Friday, November 24, 2017

Steps for Responding to Consumer Complaints

QUESTION
In our recent CFPB exam, the examiners noted that we did not have a policy and procedure in place for consumer complaints that took the CFPB's Company Portal into consideration. I know the policy is supposed to provide the procedures, step by step, for handling consumer complaints that originate through the portal. Our compliance attorney asked us to contact you, as she said you provide such policy documents for consumer complaints. So, what are the steps that we should be following when we receive a complaint through the CFPB’s complaint portal?

ANSWER
In the readiness review that we do in anticipation of the examination conducted by the Consumer Financial Protection Bureau (CFPB), one of the important policies to always review is the one relating to consumer complaints. Keep in mind that the CFPB considers the appropriate handling of consumer complaints a foundational pillar of the Compliance Management System.

The policy for handling consumer complaints that are issued via the “Company Portal” (so dubbed by the CFPB) is very extensive and involved. The lender should be particularly careful to include all the elements of the complaint mandates, which, in the case of the CFPB’s requirements, are specifically set forth in its Company Portal Manual. [See Company Portal Manual, Version 3.0, April 2017]

Response time and process flow are critical aspects of the compliance requirements vis-à-vis consumer complaints. The CFPB’s Office of Consumer Response answers consumers’ questions and sends consumers’ complaints directly to financial companies. It expects to work with companies in such a way as to get the consumer a response, generally within 15 days. The CFPB will consider responses to be past due for complaints that have exceeded the 15-day limit by which a company must provide an “in progress” status or the 60-day time limit by which a company must provide a final response to a consumer complaint.

The Consumer Response process requires the following nine steps:
  1. Consumer submits a complaint about a consumer financial product or service by web, telephone, mail, fax, email, or another agency refers the complaint to the CFPB. Consumers who submit complaints directly to the CFPB’s website can opt to have their complaint narrative published in the Consumer Complaint Database.
  2. Consumer Response screens the complaint for completeness and sends it to the company identified by the consumer via the secure portal for a response or refers it to the appropriate regulator.
  3. Company reviews the complaint, communicates with the consumer as appropriate, and determines what action to take in response.
  4. Company responds to the consumer and the CFPB via the portal.
  5. OPTIONAL: Company selects from a structured list of public company response categories.
  6. CFPB invites the consumer to review the company’s response by logging into the secure Consumer Portal or calling the CFPB’s toll-free number.
  7. Consumers are given the opportunity to provide feedback to the CFPB about the complaint process.
  8. Complaints are published in the Consumer Complaint Database when the company responds to the complaint confirming a commercial relationship with the consumer, or after the company has had the complaint for 15 days, whichever comes first. With consumers’ consent, scrubbed complaint narratives will be published when the company selects an optional public response or after the company has had the complaint for 60 calendar days, whichever comes first. Complaints can be removed if they do not meet all of the publication criteria.
  9. Complaint data and information is shared with other offices within the CFPB, including, but not limited to, Enforcement and Supervision, as necessary.

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, November 16, 2017

Adverse Action Obligations

QUESTION
We were cited for not fulfilling the requirements for adverse action. This came as a real shock to us because we relied on our LOS for the information from the credit bureau and our own compliance attorney to provide the procedures. This is really unusual for us, as we are a bank and have never previously been cited for this infraction. We conferenced about it and decided to ask for your guidance. We want to know what are our obligations in adverse action circumstances?

ANSWER
When a creditor takes any adverse action with respect to a consumer in connection with a credit transaction that is based, in whole or in part, on any information contained in a consumer report from a consumer reporting agency, it is incumbent on the creditor to implement certain procedures.

Below, I set forth the three primary obligations. 
1. Provide the consumer oral, written, or electronic notice of the adverse action;
2. Provide the consumer, orally, in writing, or electronically, with:
a. The name, address, and telephone number of the consumer reporting agency that furnished the report. If the agency compiles and maintains files on consumers on a nationwide basis, a toll-free number established by the agency must be provided and
b. A statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to comment on the specific reasons why the creditor took the adverse action; and
3. Provide the consumer, orally, in writing, or electronically, with a notice of the consumer’s right to:
a. Obtain a free copy of his or her consumer report from the consumer reporting agency that furnished the report, and the notice must indicate the sixty-day period under the Fair Credit Reporting Act (FCRA) within which the consumer may obtain the free consumer report as a result of the adverse action; and
b. Dispute with the consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency. [15 USC § 1681m(a)]

Please note that the disclosure requirement addressed in the response to this question applies to an adverse action taken, in whole or in part, based on consumer report information obtained from a consumer reporting agency. But there are many variations, such as where there is a denial or increase in the cost of credit that is not based on a consumer reporting agency, or where the adverse action is based on an affiliated party that is not a consumer reporting agency.

Procedures for properly implementing adverse action should take into consideration the full range of possibilities and variations.

Jonathan Foxx
Managing Director
Lenders Compliance Group

Thursday, November 9, 2017

Recording Calls

QUESTION
We are a lender with a home office in the state of Virginia. We had thought that anyone could record a conversation with a borrower without notice or consent at any point in time. Recently, we heard that there are laws, either state or Federal, that do speak to this sort of thing.

There was an incident where one of our loan officers recorded a borrower call unbeknownst to the borrower, a call that became somewhat unfavorable in nature, containing some harsh language, and now we are concerned that we may have done something that we should not have done.

Do you have any basic information that might help us, particularly referencing the state of Virginia, where we are located?    

ANSWER
Although you did not state which party may have used the “harsh language,” we would always caution anyone on staff in your own organization to use the utmost care and respect when conversing with any actual or potential borrower. There are many laws, both state and Federal, that prohibit the use of certain language or the use of language that could be construed by a borrower or applicant as “threatening” or “abusive.”
   
Thinking in broadest terms regarding the recording of calls, there are state-specific laws that apply here, states being where the majority of such laws apply. There are also some Federal laws, regulations, and rules that can apply too.

With the understanding that the majority of governing laws are state-specific for recording calls, many states have what is known as a “One Party Consent Law,” which means that if one party consents to the recording of the conversation, it is permissible. So, if the borrower was a party to the conversation, he or she can record the conversation without the loan officer’s consent, and the opposite is true as well.  

Other states have what is known as a “Two Party Consent Law,” in which all parties must be made aware of and consent to the call recording. An exception to this law is generally where there is no expectation of privacy, such as in a restaurant or a store. 

Some examples of Federal laws, regulations, and rules that would be applicable have more to do with the content of the conversation within the recorded calls, ensuring that there are no violations of certain regulations, rules, and Acts, such as:

  • Graham-Leach-Bliley Act (GLBA);
  • Unfair, Deceptive, or Abusive Acts or Practices (UDAAP);
  • Fair Lending rules and the Equal Credit Opportunity “ECOA,” or the Unfair, Deceptive Treatment & Practices Act “UDTPA” (i.e., anything that may be construed as potentially discriminatory in nature or disparate treatment to a consumer).

In speaking specifically to the state in question, which is Virginia, there is guidance found within the state itself. Under Virginia law, an individual who is a party to either an in-person conversation or electronic communication, or an individual who has the consent of one of the parties to the communication, can lawfully record it or disclose its contents. Please see the guidance below:

In a section of the Code of Virginia, entitled “Interception, disclosure, etc., of wire, electronic or oral communications unlawful; penalties; exceptions,” the following requirements are set forth:
A. Except as otherwise specifically provided in this chapter any person who:
1. Intentionally intercepts, endeavors to intercept or procures any other person to intercept or endeavor to intercept, any wire, electronic or oral communication;
2. Intentionally uses, endeavors to use, or procures any other person to use or endeavor to use any electronic, mechanical or other device to intercept any oral communication;
3. Intentionally discloses, or endeavors to disclose, to any other person the contents of any wire, electronic or oral communication knowing or having reason to know that the information was obtained through the interception of a wire, electronic or oral communication; or
4. Intentionally uses, or endeavors to use, the contents of any wire, electronic or oral communication, knowing or having reason to know that the information was obtained through the interception of a wire, electronic or oral communication; shall be guilty of a Class 6 felony.
[Code of Virginia, Title 19.2. Criminal Procedure, Chapter 6. Interception of Wire, Electronic or Oral Communications, § 19.2-62, A.1-4.]

Note, also, that the subject section states:


It shall not be a criminal offense under this chapter for a person to intercept a wire, electronic or oral communication, where such person is a party to the communication or one of the parties to the communication has given prior consent to such interception. [§ 19.2-62. Interception, disclosure, etc., of wire, electronic or oral communications unlawful; penalties; exceptions. B.2. Emphasis added.]

Michelle Leigh
Director/Internal Audits and Controls
Lenders Compliance Group
Executive Director/Servicers Compliance Group

Thursday, November 2, 2017

Payment Shock Notice

QUESTION
Our federal regulator recently advised us to issue a payment shock notice to our borrowers. Actually, we never even knew such a notice existed. What is a payment shock notice? What are the format and procedures?

ANSWER
The Payment Shock Notice is a voluntary notice that a lender or servicer provides to a borrower in order to alert the borrower about the potential increase in the property taxes for a home.

The disclosure is often used in new construction financing. For instance, with a newly constructed home the property taxes for the first year may be based on the unimproved value or only partially on the improved value. If this is the case, there can be a substantial increase in the property taxes once the taxes are fully based on the improved value.

There are Best Practice solutions associated with the Payment Shock Notice, as follows:
  • Notify borrowers in advance and provide an opportunity to make voluntary payments ahead of schedule to avoid payment shock.
  • Offer consumers extended repayment plans, even beyond those required under the Real Estate Settlement Procedures Act (RESPA), to make up substantial shortages associated with payment shock. [63 Federal Register (1998) 3214, 3233, 3237-3238] 

Many of our clients, both lenders and servicers, implement the foregoing Best Practices – even without a regulatory recommendation to do so.

The Payment Shock Notice can be a relatively simple form, which was adopted as a public guidance document. [See 63 Federal Register (1998) 3214, 3237-3238, Appendix G]

The notice should contain some basic elements, such as advising the borrower of the potential for a substantial increase in bills paid out of the escrow or impound account because of property taxes (or another applicable item) after the first year, as well as a statement that the borrower could elect to voluntarily make higher payments into the account during the first year to help offset the payment shock.

The rule of thumb for a timeline to issue the Payment Shock Notice would be when a lender or servicer anticipates a substantial increase in the bills paid out of the escrow or impound account after the first year. It could be delivered with, or separate from, an initial escrow account statement. 

With respect to the method of delivery, although the Payment Shock Notice is a Best Practice and not specifically required by RESPA, nor is it a mandate under RESPA’s implementing regulation, Regulation X, there is general recognition in Regulation X that ESIGN (Electronic Signatures in Global and National Commerce Act) can be used for RESPA-related documents, as Regulation X provides that ESIGN applies to Regulation X. 

The Payment Shock Notice is a type of notice covered by ESIGN. Consequently, the notice may be provided by facsimile, email or other electronic means if the consumer consents and the other requirements of ESIGN are met. [24 CFR § 3500-23]

Jonathan Foxx
Managing Director
Lenders Compliance Group