Thursday, September 17, 2020

Essentials of Telemarketing Policy

You recently answered a question about a company not having a Do Not Call list. The answer you gave became the basis of a meeting about how to manage our telemarketing procedures. We have updated our policies and procedures and commenced the training of our internal sales force and external telemarketing firm. I can’t thank you enough for your timely advice.

But a subject came up in our meeting that I would like to discuss. In updating our policies and procedures, we could not find a list of chapter and section titles. We want to list them and then provide our requirements in the procedures. So, we decided to send this question to you with the hope that you will provide some of the elements needed in policy and procedures on telemarketing.

Our question is, then, what are some essential elements of the telemarketing policy and procedures?

I wrote about telemarketing violations last week in connection with the Do Not Call Registry and procedures as these relate to the Telemarketing Sales Rule. Given that you are currently following up on your telemarketing strategies and updating your policy document, I will offer some elements that should go into it.

You should contact us for a Telemarketing Tune-up, because a policy approach is only a foundational framework. Our audit is quick and cost-effective. It provides findings, recommendations, and a risk rating. Your telemarketing procedures should be evaluated for regulatory compliance. That is what the Telemarketing Tune-up does. If you are actively involved in telemarketing initiatives, you should get this audit done as soon as possible.

With respect to essential elements of a telemarketing policy, I would recommend that you have chapters and sections for the following subjects. My suggestions are not comprehensive because telemarketing strategies vary, and your policy should adequately reflect the variance. However, as a serviceable set of guidelines, I think you should consider these outlined elements fundamental to a solid telemarketing policy.

Permissible Hours
You should not be making telephone calls to consumers before 8 A.M. or after 9 P.M. local time at the call’s destination, unless the person being called has specifically agreed to let you call at another time.

Do Not Call Lists
This section would require on-going training and monitoring. For instance, among other things, you need to maintain a list of consumers who ask not to receive telemarketing solicitations, consumers whose names appear on the national Do Not Call list, tracking for honoring the requests of consumers who ask not to receive telemarketing solicitations, implementing a process to prevent telephone solicitations to any telephone number on your Do Not Call list or the national Do Not Call list, training, and keeping a version of the national Do Not Call Registry, obtained from the Registry no more than three months prior to the date any call is made, and maintain records documenting this process. Furthermore, you should be auditing contact with consumers to ensure you do not sell, rent, lease, purchase, or use the national Do Not Call database, or any part of it, for any purpose except compliance with the rules and to prevent telephone solicitations to telephone numbers registered on the national database.

Oral disclosures for Outbound Telephone Calls
Make it a requirement to disclose the following information truthfully, promptly, and in a clear and conspicuous manner, in any outbound telephone call to a potential new customer: your institution’s identity, the purpose of the call (viz., to originate mortgage loans), and that you originate mortgage loans. I suggest you contact us for compliance support in this area, as we are one of the few compliance firms in the country that provides Call Calibration, which is a methodology to audit and report on calls between a financial institution and consumers.

Artificial or Prerecorded Voice Calls
Be very careful in using this telemarketing strategy! You should not use artificial or prerecorded voice calls to a consumers’ homes (or business) unless you already have a business relationship with the persons being called. Be sure that any artificial or prerecorded voice message releases the line of the person being called within five seconds of notice that the called party has hung up. Your call should have a call identifier. Also, the beginning of any prerecorded message must clearly state your identity, and during or after any prerecorded message, you must state your telephone number.

Call Abandonment
You should not abandon more than 3 percent of calls answered by a person. Additionally, you must deliver a prerecorded identification message when abandoning a call.

Caller Identification
Always transmit caller identification (i.e., caller ID) information, when available, and do not block this information ever.

Facsimile Machines
Do not send unsolicited advertisements to facsimile machines. If you do send any fax, be sure to identify your institution as the sender.

Disclosures for Telephone and Direct Mail Solicitations
Yet another area that calls for Call Calibration! This is an area fraught with litigious minefields. Be sure to disclose the following information, orally or in writing, before a customer pays for any services offered in a telephone or direct mail solicitation: the total costs to receive the services offered; all conditions that must be satisfied to receive the services offered; if you have a policy of not making refunds, provide a statement of your policy; if you mention a refund policy, provide a statement of the key terms and conditions of the policy.

You should not misrepresent, directly or by implication, many forms of information, such as the total costs to receive any services offered; all conditions that must be satisfied to receive the services being offered; any features of your services; and any aspect of your refund policies. Steer away from ever saying that you are affiliated with, or endorsed by, any government or other organization. Be careful, too, about misrepresenting prize promotions, such as not disclosing any aspect of a prize promotion, not including (among other things) the odds of being able to receive a prize, misleading about the nature or value of the prize, or misstating that a purchase or payment is required to win a prize or to participate in a prize promotion. Consider Call Calibration when conducting telemarketing campaigns involved prize promotions.

Verifiable Authorization
You should obtain express verifiable authorization before submitting a check, draft, or other form of payment from a person’s account as the result of your telemarketing efforts in one of three ways: in writing; by tape-recording an oral authorization that contains references to the date of the draft or other form of payment, its amount, your name, your telephone number for consumer inquiries, and the date of the authorization; and by providing written confirmation of the transaction, including the date of the draft or other form of payment, its amount, your institution’s name and telephone number for consumer inquiries, and the date of the customer’s oral authorization

False or Misleading Statements
I would insert a separate section for this policy element, even though it includes aspects of the section on Misrepresentation outlined above. Use this section to set forth definitions of false and misleading statements and provide examples of each.

Assisting in Violations
Include a section that states how your institution will not assist anyone else in deceptive or abusive telemarketing acts or practices when you know or should know the other person is violating the FTC or FCC rules. Such an affirmation is important, and will be looked upon favorably by regulators during an audit.

Abusive Acts or Practices
This is a thorny area filled with problematic pitfalls and potential litigation. Threats, intimidation, or the use of profane or obscene language is only the start. It may seem obvious that you should not request or receive payment of any fee before a loan is originated if you have guaranteed or represented a high likelihood of success in obtaining the loan. But there is far more involved in these telemarketing hurdles. For instance, you should not initiate a telephone call, other than a call for emergency purposes or with the prior express consent of the called party, using an automatic dialing system or an artificial or recorded voice, to emergency lines, health care facilities, radio common carriers, or any number for which the called party is charged for the call. Expanding abusive acts further, you should not (1) use an automatic dialing system to make calls that simultaneously engage two or more lines of a multi-line business; (2) disconnect an unanswered telemarketing call prior to at least 15 seconds or four rings; (3) guarantee or assure customers regarding the likelihood of loan approval; (4) cause any telephone to ring or engage any person in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass; and (5) initiate an outbound telephone call to a person when that person previously has stated he or she does not wish to receive an outbound telephone call from your institution. Use Call Calibration to monitor for abusive acts or practices.

Recordkeeping (24 Months)
Be sure to include a section on recordkeeping. All substantially different advertising materials must be kept for 24 months. Keep the name and last known address of each customer, the loan made, the date the loan was closed, and the amount paid by the customer in connection with the loan. Keep also the name, any fictitious name used, the last known home address and telephone number, and the job title(s) for all current and former employees directly involved in telephone sales. If you permit employees to use fictitious names, you must be able to trace each fictitious name to only one employee. And, maintain all verifiable authorizations required under the rules. With respect to prize offers, keep the name and last known address of each prize recipient and the prize awarded for prizes having a value of $25 or more.

Recordkeeping (60 Months)
Keep all Do Not Call requests for 60 months, including any consumer requests to not receive solicitations.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Thursday, September 10, 2020

Telemarketing Violations

We received today a notice from the FTC that says we are in violation of the Telemarketing Sales Rule. They cite us for not complying with the Do Not Call requirements. We do most of our loan originations online, and we use telemarketers to create business leads for us. 

One glaring problem is that we did not maintain a Do Not Call list. But there are other issues, too. 

Now we have 30 days to respond to the FTC or face penalties. We’re now scrambling to show that our telemarketing complies with the FTC’s guidelines. 

I know you get a lot of mail, but time is running out. We need your help. 

What should we be doing to comply with the Do Not Call requirement? 

Should we be monitoring the Do Not Call Registry? 

What happens if we have telemarketing procedures but still make a mistake by calling somebody on the Do Not Call list?

I have prioritized your question. Although we do receive a great deal of mail, some questions are more time-sensitive than others, and yours needs an immediate response. 

I urge you to contact my firm to do a Telemarketing Tune-up soon, so that (1) you get a due diligence review with a risk rating, showing strengths and weaknesses in your telemarketing program, and (2) you can show your regulator that you are taking affirmative steps toward conducting an independent review.

The Telemarketing Sales Rule (“TSR”) has a Do Not Call Safe Harbor. However, to use it, you need to comply with a set of guidelines. If you or your telemarketer can establish that, as part of its routine business practice, you meet certain requirements, you will not be subject to civil penalties or sanctions for erroneously calling a consumer who has asked not to be called, or for calling a number on the National Registry.

The following is a list of those requirements.

-You or the telemarketer has established and implemented written procedures to honor consumers’ requests that they not be called.

-You or the telemarketer has trained its personnel, and any entity assisting in its compliance, in these procedures.

-You, the telemarketer, or someone else acting on your behalf (or a charitable organization) has maintained and recorded an entity-specific Do Not Call list.

-You or the telemarketer uses and maintains records documenting a process to prevent calls to any telephone number on an entity-specific Do Not Call list or the National Do Not Call Registry, provided that the process involves using a version of the National Registry downloaded no more than 31 days before the date any call is made.

-You, the telemarketer, or someone else acting on your behalf (or a charitable organization) monitors and enforces compliance with the entity’s written Do Not Call procedures.

-The call is a result of an error. (For the meaning of “error,” see below.)

You should continually monitor the Do Not Call Registry! You should not call consumers if, among other things, they have placed their number on the National Registry, or not given written and signed permission to call, or you have no established business relationship with the consumers, or if they have asked to get no more calls from you or the telemarketer contacting them on your behalf.

If you don’t constantly monitor and comply with the National Registry, you and the telemarketer may be liable for a TSR violation. If an investigation reveals that neither you nor the telemarketer had written Do Not Call procedures in place, both of you will be liable for the TSR violation. If you had written Do Not Call procedures, but the telemarketer ignored them, the telemarketer will be liable for the TSR violation. Still, you also might be liable, unless you could demonstrate that you actively monitored and enforced Do Not Call compliance and otherwise implemented your written procedures. Ultimately, you are responsible for keeping a current entity-specific Do Not Call list, either through a telemarketing service you hire or your own efforts.

With respect to your question about what would happen if you have procedures but still make a mistake by calling somebody on the Do Not Call list, the Federal Trade Commission might view it as an “error,” if and only if you or the telemarketer has and implements written Do Not Call procedures. Generally, this action will not be liable for a TSR violation if a subsequent call is the result of an error.

But – and this is important – you may be subject to an enforcement investigation, which would focus on the effectiveness of the procedures in place, how they are implemented, and if all personnel are trained in Do Not Call procedures. If there is a high incidence of “errors,” it may be determined that the procedures are inadequate to comply with the TSR’s Do Not Call requirements, the Safe Harbor is not fulfilled, and the calls violate the TSR. On the other hand, if there is a low incidence of “errors,” there may not be a TSR violation. The determination of whether an excusable “error” occurs is based on the facts of each case.

Here’s a rule of thumb: to ensure that adequate Do Not Call procedures are implemented, test periodically for quality control and effectiveness.

Your situation is not unique. Many financial institutions regularly face the prospect of telemarketing violations. Indeed, any company that engages in telemarketing or uses a telemarketer should get the Telemarketing Tune-up done as soon as possible. 

You might also want to require your telemarketer to do the Telemarketing Tune-up as a condition for doing business with you.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Thursday, September 3, 2020

Management Oversight: Evaluation Methods

Our Board of Directors has asked our internal audit group to provide an evaluation of our management. Some members of our management are resisting, saying that they do not need to be bothered with oversight.

We decided to retain an independent internal audit for this purpose, and your firm’s name was mentioned. We are contacting you to discuss this matter. In the meantime, I wonder if you would share with all of us some insight into how financial institutions should evaluate management oversight from a self-assessment point of view.

We have two questions.

First, what should evaluation of management oversight consider?

And second, what questions should we ask as part of a self-assessment?

Quis custodiet ipsos custodes?[i]

Who will guard the guards themselves?

This Latin phrase comes from the Satires, a collection of satirical poems by the 2nd-century Roman poet Decimus Junius Juvenalis, better known as Juvenal. 

In Plato’s Republic, there is a considerable disquisition on how to control persons in positions of power whose actions may lead to abuse of authority.[ii] 

Juvenal was referring to the notion that wives cannot be trusted, so keeping them under guard is a good strategy for monitoring them. However, pessimistically, Juvenal is suggesting that keeping them under guard is not a solution because the guards themselves cannot be trusted. 

Plato was more optimistic about human nature. He thought that people in power could be trusted to behave properly and that it is "absurd" that they should require oversight. Indeed, Glaucon, Socrates’ interlocutor, states: “Yes, it would be ridiculous that a guardian should need a guard.”[iii]

There is nothing absurd about management oversight in a financial institution. Whether the initiative is undertaken as a self-assessment or an internal audit, management should receive a great deal of oversight. 

Doing an evaluation is needed, but will it be effective? It would seem that Juvenal’s view – “who will guard the guards themselves” – leads to evaluation; but Plato’s view – it is “ridiculous that a guardian should need a guard” – leads to resistance.

Management oversight is how a financial institution determines that strategic policies and objectives are being met through an evaluation of policies, plans, programs, and projects carried out by people charged with the authority to achieve expected results. These results should be accomplished in compliance with applicable policies, laws, regulations, and ethical standards. A Board stands “over” management hierarchically, and, as such, focuses its “sight” on management actions.

When Lenders Compliance Group conducts an independent internal audit, we include a review of many factors involved in management oversight. Our philosophy is that our evaluation of oversight functions are meant to look at a process, program, or project “from above,” as an independent agent (as it were) for the Board’s governance role. The Board generally is not involved in day-to-day management, but an oversight evaluation can provide mission-critical information about whether the Board’s many obligations are being duly implemented.

I am going to provide a set of factors that my firm takes into consideration when we are retained for an internal audit, which necessarily includes management oversight. 

If you only need an evaluation of management oversight, keep your costs down and use our Management Tune-up®, which is a targeted, cost-effective, mini-audit that provides an extensive report and risk rating. 

If interested, click HERE and we’ll send you information about it.

Concerning your first question about evaluating management oversight, we consider a host of factors and conditions. The following list provides a few important considerations.

- Extent of Board oversight and involvement in assuring compliance with consumer protection and fair lending laws and regulations.

- Training of directors and senior management regarding compliance and fair lending issues.

- Rationale for implementing new policies or procedures or modifying existing ones.

- Any negative comments on rejected loan applications during loan committee or any other meeting (such records must be traced to the specific loan file to assure that no unlawful disparate treatment or discrimination was involved in the denial).

- Consideration of new loan or deposit products and strategies for their implementation.

- Consideration of new software or software vendors.

- Consideration of third parties for compliance audits.

- Approval of, and rationale for, branch openings and closings.

- Whether the Board documented a review of the prior report that included, as applicable (i.e., a discussion of recommendations for policy changes, an adoption of those revisions, and a report regarding corrective action and subsequent testing for identified violations).

Your second question involves the questions you want to ask when conducting a self-assessment for management oversight. I am glad you want this information because asking the right questions is the key to getting useful answers. Keep in mind that your review should use collected materials as well as discussions with management. 

I will put these questions in the context of compliance because that is (and should be) the cornerstone of this review. Be sure you have the remit to determine if management oversight is strong, adequate, or weak. I think you should consider the following questions.

- What is the business strategy, and what is the compliance implications of that strategy (for example, elevated risk due to rapidly growing subprime lending, cutting-edge e-banking activities, and so forth)?

- What particular compliance-related area(s) does management feel are weak or in need of review?

- Have the Board and senior management worked to foster a positive climate for compliance?

- Has management allocated the appropriate level of resources to compliance?

- Does the institution have a designated compliance officer and/or compliance committee? (If not, is the absence of an officer or committee significant in light of the institution’s resources and risk profile?)

- Has management ensured that the compliance officer(s) and/or compliance committee has/have the level of authority and accountability to effectively administer the institution’s compliance management program?

- Has management responded correctly and promptly to consumer complaints?

- Has management responded deliberatively to deficiencies noted and suggestions made at previous examinations and audits?

- How does management stay abreast of changes in regulatory requirements and other compliance issues? (Is this method effective in light of the institution’s resources and risk profile?)

- How does management ensure that the institution’s staff stays abreast of changes?

- How does management ensure that compliance is considered part of new product and service development, marketing, and advertising? 

Thursday, August 27, 2020

Compliance Management Program: Challenges

Recently, we were cited by our regulator for not having an adequate Compliance Management Program document that was consistent with our “size, complexity, and risk profile.” 

We had bought a manual for a Compliance Management Program from a policy publisher and adapted it to our use. The person who purchased the policy is no longer with the company, so now we’re scrambling to put together a program that will satisfy the examiners. We don’t want to buy another off-the-shelf policy at this point. Lesson learned. 

We’ve started to compile information, but this situation is getting overwhelming, and we’re running out of time. 

Since you do reviews for the Compliance Management Program, can you give us a way to focus our research?

As Erma Bombeck, the inimitable American humorist, once said, “When your mother asks, ‘Do you want a piece of advice?’ it is a mere formality. It doesn’t matter if you answer yes or no. You’re going to get it anyway.” So, I am going to put on my Mother Hen hat and tell you straight-out: if your company does not have a Compliance Management Program that represents its “size, complexity, and risk profile,” a world of hurt is coming your way! Getting policies from “manual mills,” as I call these policy purveyors, is an ineffective and dangerous way to manage your policies and procedures. And, getting a Compliance Management Program from a manual mill is particularly inappropriate because this outline is the foundational basis of all compliance-related areas of interest.

We realized this years ago when we began our Compliance Tune-up® audit series. The very first Compliance Tune-up® was the CMS Tune-up®, a targeted audit that evaluates the Compliance Management System or Program. Our review is affordable, collaborative, and quick. It reports a company’s strengths and weaknesses with respect to the compliance management program - plus, it provides a risk rating. If I were in your position, I would be getting the CMS Tune-up® done as soon as possible. Then, I would use the results to ensure that the CMS is responsive to the reported findings. 

Contact me HERE to discuss this matter or request more information HERE about the CMS Tune-up®.

Regulatory compliance management of consumer laws involves implementing policies and procedures that are designed to ensure the institution understands and follows applicable laws in a manner that avoids fines, lawsuits, and reputational issues. The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau (CFPB) that centralized the monitoring and enforcement of consumer protection laws. The CFPB issues regulations that institutions use to implement the laws that Congress passes. The risk that institutions face is that these regulations will not be followed as intended. The ramifications that could result include actions by the institution’s primary regulator, as well as potential fines, lawsuits, and reputation risk.

Thus, it is essential to have a robust Compliance Management Program in place to oversee the institution’s compliance with applicable laws and regulations. I will provide some high-level guidelines for you to consider. Keep in mind that drafting and implementing a review process is only the beginning. You should also implement a risk assessment program that addresses the need to periodically review and evaluate the adequacy of the institution’s CMS efforts to protect the institution.

The following brief outline offers a cursory highlight of the areas of interest that should be included in the Compliance Manager Program. It provides some insight into an evaluation generally, while also providing some understanding of risk assessment imperatives. It would be best if you used the CMS Tune-up® to get a focused review of your overall compliance program. Since I do not know if you have completed a recent internal audit, I am going to outline some features of a risk assessment; then discuss a compliance management system policy document; then mention two caveats. Finally, I will briefly discuss risk ratings and how these apply in the context of a Compliance Management Program.

Risk Assessment Objectives
A periodic risk assessment should determine the quality of the institution’s Compliance Management Program, including the degree to which management has taken a proactive approach to compliance and whether management can demonstrate its ability to assure compliance with federal consumer laws and regulations. Moreover, it should assess whether the Compliance Management Program is effective at facilitating compliance; identify potential deficiencies in the 
Compliance Management Program and areas of most significant risk and concern; and, determine where transaction testing is necessary.

Identify Applicable Statutes and Regulations
Determine if the 
Compliance Management Program adequately addresses (viz., through oversight, policies and procedures, training, monitoring, and complaint response) all areas related to the following federal consumer laws, regulations, rules, and policy statements. Depending on the institutional structure and charter, this would include the areas of lending, deposits, and many other items, such as HMDA or CRA requirements, advertisements, banking format, privacy, leasing, debt collection, interstate banking, branch activation and closings, online protections, telemarketing, CAN-SPAM, marketing, and much more.

Evaluate Management Oversight
Review the Board and committee minutes. Review of these documents should give you an indication of conditions, such as the extent of Board governance and oversight in assuring compliance with consumer protection and fair lending laws and regulations; director and senior management training; policy and procedures rationalization; negative comments on rejected loan applications during loan committee or any other meeting; consideration of new loan or deposit products and strategies for their implementation; new software or software vendors; consideration of third parties for compliance audits; branch openings and closings rationalizations; and whether the Board maintains a reporting structure that documents discussions of recommendations for policy changes, adoption of revisions, and corrective actions and testing.

Evaluate the Compliance Management Program
To evaluate the 
Compliance Management Program, you should review the following, at a minimum:

Policies and Procedures Review
Policies and procedures, whether written or unwritten, should cover all of the department and function areas of the financial institution. An entity may have other policies or procedures related to compliance, but not specific to compliance, and those policies need to be reviewed as well, depending on the institution’s activities and risk profile.

Review your institution’s training records and have sufficient discussions with management to answer a host of review topics, such as, among other things, whether every employee receives appropriate training given his or her compliance responsibilities; how often training is conducted; the acceptable frequency of training activity; if the training program is continuously updated to incorporate accurate, complete information on new products and services, regulatory changes, emerging issues; and if the effectiveness of the training is evaluated by management through delayed testing, before-and-after work product reviews, or other means.

Conduct documentation reviews and have discussions with management to answer specific review topics, such as, among other things, what monitoring programs are in place for loan transactions and deposit transactions; whether every transaction is subject to monitoring, and, if not, what is the level of transactional review; if the level of monitoring is adequate; if monitoring includes a review of the performance by third-party service providers; what are the appropriate personnel conducting the monitoring (i.e., someone with daily involvement in the monitored area and who has received adequate training); how errors are identified and documented during the monitoring process. Importantly, determine whether the institution’s monitoring efforts encompass all applicable regulations.

Consumer Complaint Response
Conduct documentation reviews and discuss with management whether, among other things, your institution implements policies and procedures to handle consumer complaints; if policies and procedures are in place, do they comply with all regulatory requirements regarding complaints (maximum time limits for a response, and documentation requirements); if your company has received consumer complaints, have all complaints been resolved satisfactorily; whether you cross-referenced the complaints to all other areas of the 
Compliance Management Program; and if the type or quantity of complaints suggest any other areas in need of in-depth review.

Thursday, August 20, 2020

Multifamily Relief and Rental Protections under the CARES Act

We specialize in multifamily lending and servicing. 

The CARES Act provides for mortgage and rental relief based on the type of property. 

A recent internal audit showed us that we do not have adequate procedures in place to implement the relief provision of the CARES Act. So, we are particularly interested in knowing about multifamily relief and rental protections. 

In counseling your multifamily clients, what are some of the guidelines that you recommend with respect to procedures for mortgage and rental relief?

In conducting internal audits for our clients, we may show a finding for weakness in CARES Act procedures for both single and multifamily properties. This is not unusual, given the many new regulatory requirements in response to the COVID-19 pandemic. If you would like us to conduct an internal audit that targets such pandemic response regulations, or a full internal audit review, please contact me HERE.

The Coronavirus Aid Relief and Economic Security Act (CARES Act) indeed contains several provisions that are addressed at mortgage and rental relief. These provisions are in addition to existing sections 1024.39 through 1024.41 of RESPA. The type of relief available depends on the type of property involved.

One-to-Four Family real estate is covered in Section 4022 (Foreclosure Moratorium and Consumer Right to Request Forbearance) of the CARES Act, where it grants forbearance rights and protection against foreclosure to borrowers with a federally backed mortgage loan. Multifamily real estate - five or more families - are addressed in section 4023 of the CARES Act.

Let’s look at the Multifamily. Then, I will discuss rental protections.

Multifamily relief provisions apply to federally backed multifamily mortgage loans. These include any loan (other than temporary financing, such as a construction loan) that:
  • Is secured by a first or subordinate lien on residential multifamily real property designed principally for the occupancy of five or more families.
  • Is made, in whole or in part, or insured, guaranteed, supplemented, or assisted in any way by any officer or agency of the Federal Government or under or in connection with a housing or urban development program administrated by HUD, or is purchased or securitized by Fannie Mae or Freddie Mac.
Multifamily borrowers with a federally backed multifamily mortgage loan experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency may request forbearance. The loan must have been current on its payments as of February 1, 2020. The request for relief must be submitted to the borrower’s servicer, and such a request may be verbal or written.

Upon receipt of an oral or written request, the servicer must:
  • Document the hardship.
  • Provide forbearance for up to 30 days.
  • Extend forbearance for up to two additional 30-day periods, upon the request of the borrower, provided that such request is made during the covered period (viz., the covered period begins upon enactment (March 27, 2020) and ends on December 31, 2020, or, if sooner, the termination date of the COVID-19 national emergency as declared by the President); and at least 15 days prior to the end of the original 30-day period.
The borrower can discontinue forbearance at any time.

Now, let’s discuss rental protections.

A multifamily borrower receiving forbearance may not, for the duration of the forbearance:
  • Evict or initiate the eviction of a tenant from a dwelling unit within the applicable property solely for nonpayment of rent or other fees.
  • Charge late fees, penalties, or other charges to such tenant on account of the late payment of rent.
  • Require a tenant to vacate a dwelling unit on the applicable property on fewer than 30 days’ notice (and such notice may not be issued during the forbearance period).
A related provision of the CARES Act provides a temporary moratorium on eviction in certain properties, including those that have a federally backed multifamily mortgage loan. The moratorium imposed by this provision applies irrespective of whether the borrower has sought or is granted forbearance relief.

Under this provision, during the 120-day period beginning on March 27, 2020, the lessor may not:
  • File any action to recover possession of the covered dwelling on account of non-payment of rent or other fees or charges.
  • Charge the tenant for fees, penalties, or other charges related to nonpayment of rent.
Also, the lessor may not require a tenant to vacate a dwelling unit on fewer than 30 days’ notice, and such notice may not be issued during the 120-day period.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Thursday, August 13, 2020

Fair Housing Act – Advertising Violations

We had a Fair Housing Act examination recently by our state banking department and got hit with a citation for violations. This came as a real shock to us. 

 We have 30 days to fix the issues and also prove that we have done a thorough review of our advertising to look for potential Fair Housing violations. We only have one person in compliance – me! I have done a lot of research for this response. But this seems like an overwhelming task. 

So, I’m turning to you for some guidance. 

Are there some basic things I should be looking for in our advertising?

I recognize this may cause some pressure, but you’ll do fine as long as you undertake the review in a careful and procedural way. You need to produce a report that provides specimens of the advertisements (before and after revisions), the remedial actions taken with respect to those particular advertisements, and the advertising policies and procedures that your financial institution implements. 

My firm does advertising compliance reviews all the time and, if you need assistance, please contact me HERE. I’ll have your advertisements reviewed immediately by competent subject matter experts.

Keep in mind, advertising compliance draws on numerous interlocking regulations, Acts, Best Practices, rules, disclosure mandates, and so forth. A small mistake can get magnified quickly into a litigious class action issue, let alone a federal or state administrative action. So, make it your business to review each advertisement before it is published. Seek appropriate compliance support if there is a scintilla of doubt or uncertainty.

As to a consideration of things to be on the look out for, I would put the following on the list. Though it is not comprehensive, I think it serves to set the tone for further reviews on your part. 

And, as I said, contact me if you need further support. 

My comments are based on Fair Housing Act mandates.
  • Advertisements must include the equal housing logo a statement that you are an equal housing lender. In printed advertising, the logo must be no smaller than:
    • 1/2 page or larger ad (2 × 2 inches) 
    • 1/8 page up to 1/2 page ad (1 × 1 inch)
    • 4 column inches to 1/8 page ad (1/2 × 1/2 inch)
    • Less than 4 column inches (Need not use the logo, but must use the legend “Equal Housing Lender”) 
  • In any advertising other than printed advertising, the logo must be at least as large as any other logo used. If no other logo is used, then the fair housing logo must be clearly visible in boldface type or at least 3 percent of the advertisement should be devoted to a statement of the fair housing policy.
  • For oral advertising, you may satisfy the Fair Housing Act advertising requirement by stating that you are an “equal housing lender.”
  • When advertising is both verbal and visual, you should use either method (a visual logo or a spoken statement) to meet the requirement.
  • Each public office should prominently post an equal housing lender poster.
  • Advertising may not contain any words, symbols, models, or other forms of communication suggesting a discriminatory preference or policy of exclusion because of race, color, religion, national origin, sex, handicap, or familial status. When using models in advertising, you should use models from different racial groups.
  • You should avoid the following:
    • Words descriptive of a dwelling, landlord, or tenants, such as white private home, colored home, Jewish home, Hispanic residence, or adult building.
    • Words indicative of a prohibited basis, such as: 
— Race: Negro, Black, Caucasian, Oriental, American Indian.
— Color: White, Black, Colored.
— Religion: Protestant, Christian, Catholic, Jew.
— National Origin: Mexican American, Puerto Rican, Philippine, Polish, Hungarian, Irish, Italian, Chicano, African, Hispanic, Chinese, Indian, Latino.
— Sex: The exclusive use of words in advertisements (such as “he” or “she”), stating or tending to imply that the loans being advertised are available to persons of only one sex and not the other.
— Age: Senior citizens.
— Handicap: Crippled, blind, deaf, mentally ill, retarded, impaired, handicapped, physically fit.
— Familial Status: Adults, children, singles, mature persons.
  • Words and phrases used in a discriminatory context, such as “restricted.”
  • “Red light” words. Examples of “red light” words include “sports enthusiasts,” which could discourage the handicapped, and “quiet neighborhood,” which could be a code word for “no children.” 
  • Symbols or logotypes that imply or suggest race, color, religion, sex, handicap, familial status, or national origin.
  • Colloquialisms used regionally or locally that suggest race, color, religion, sex, handicap, familial status, or national origin.
  • You should avoid the selective use of advertising media or content, such as:
    • The use of the English language alone or the exclusive use of media catering to the majority population in an area, when non-English language or other minority media also are available.
    • The strategic placement of billboards, brochures distributed within a limited geographic area, or displays or announcements only available in selected branches.
    • The use of human models primarily in media that cater to one racial or national origin segment of the population without a complementary advertising campaign directed at other groups.
Be sensitive to the potential discriminatory effects of your marketing practices! For example, if you often focus on contacts with real estate agents and mortgage brokers as a primary marketing strategy to generate loan applications, you should be careful to include contact with minority real estate agents and loan brokers and other real estate agents and loan brokers serving predominantly minority areas.

Like the Equal Credit Opportunity Act, creditors under the Fair Housing Act may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Thursday, August 6, 2020

COVID-19: Imposters and Money Mules


I am an attorney who handles compliance for a small bank here in the southeast. A customer came into our branch and indicated that a person claiming to represent a government agency contacted her by phone, followed up with email, and asked for bank account information to process an Economic Impact Payment.

Customers have told us about unsolicited communications from supposedly trusted sources or government programs related to COVID-19, instructing readers to open embedded links or files or to provide personal or financial information, including account credentials (i.e., usernames and passwords).

We even reported a SAR on a customer who made several atypical transactions involving an overseas account. When we asked about these transactions, the customer indicated they were for a person located overseas who needs financial assistance because of the COVID-19 pandemic.

I wonder if you would provide some possible scams relating to COVID-19. What are some illicit activities and consumer fraud schemes that are associated with COVID-19?


Most people want to obey the law. Unfortunately, there are plenty of bad actors who spend their time cooking up ways to defraud consumers. One set of responsibilities for a bank or nonbank is to detect, prevent, and report consumer fraud and other unlawful activities. COVID-19 has brought out the best and the worst in people, especially the worst of the worst: those who would stalk consumers to connive ways to filch their hard-earned assets amid a pandemic. Let’s face it, some people are just so broken that they don’t care about anyone but themselves. But everyone has a stake in a stable economy.

There has definitely been an increase in consumer fraud relating to COVID-19. I am going to briefly outline two types of fraudulent schemes: imposter scams and money mule schemes. Both of these deceptive tactics are described in your question.

Keep in mind that crooks are very creative. As soon as their scam is exposed, they come up with another way to commit fraud. So, even as I write a response, the bandits are continuing to find new ways to manipulate consumers, doing their illegal most to exploit vulnerabilities caused by the pandemic.

Imposter scams and money mule schemes happen where actors deceive victims by impersonating federal government agencies, international organizations, or charities. FinCEN has identified the financial red flag indicators to alert financial institutions to these frauds and to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with the COVID-19 pandemic. We have broadened our Anti-Money Laundering Program testing, policies, and training to include such red flags.

For AML compliance assistance, contact us HERE.

But no single financial red flag indicator is necessarily indicative of illicit or suspicious activity. Financial institutions should consider additional contextual information and the surrounding facts and circumstances. Such context-related information includes a customer’s historical, financial activity, whether the transactions are in line with prevailing business practices, and whether the customer exhibits multiple indicators. Various criteria should be considered before determining if a transaction is suspicious or otherwise indicative of potentially fraudulent COVID-19-related activities.

In other words, your review should be “risk-based,” ensuring compliance with the Bank Secrecy Act (BSA). Therefore, perform additional inquiries and investigations where appropriate. Unfortunately, some of the financial red flag indicators may apply to multiple COVID-19-related fraudulent activities. Given that many scammers are targeting customers as opposed to financial institutions directly, financial institutions should remain on the alert for potential suspicious activities when interacting with their customers,

Let’s discuss imposter scams first, and then follow with a discussion about money mule schemes. I have given you numerous footnotes to help you to train yourself, train your staff, and inform your customers. I will conclude with some guidance on completing the Suspicious Activity Report. You can always contact me if you want to discuss your compliance needs in detail. Contact me HERE.

Imposter Scams

In imposter scams, criminals impersonate organizations such as government agencies, non-profit groups, universities, or charities to offer fraudulent services or otherwise defraud victims. While imposter scams can take multiple forms, the basic methodology involves an actor who (1) contacts a target under the pretense of representing an official organization, and then (2) coerces or convinces the target to provide funds or valuable information, including engaging in behavior that causes the target’s computer to be infected with malware, or spreading disinformation.[i] In the case of schemes connected to COVID-19, imposters may pose as officials or representatives from the Internal Revenue Service (IRS),[ii] the Centers for Disease Control and Prevention (CDC),[iii] the World Health Organization (WHO), other healthcare or non-profit groups, and academic institutions.[iv]

Imposters defraud and deceive the vulnerable, including the elderly and unemployed, through the solicitation of payments (such as digital payments and virtual currency), donations, or personal information via email, robocalls, text messages,[v] or other communication methods. For instance, an imposter may contact potential victims by phone, email, or text to require that the victim must verify personal information or send payments to scammers in return for COVID-19-related stimulus payments or benefits, including Economic Impact Payments (EIP)[vi] under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.[vii]

We have provided considerable information about EIPs in our free Checklist & Workbook, Business Continuity Plan, COVID-19 Pandemic Response (now on its Update # 7, with Update # 8 to be released soon). Get it HERE.

Another instance includes imposters contacting victims and posing as government or health care representatives engaged in COVID-19 contact tracing activities, implying that a victim must share personal or financial information as part of contact tracing efforts.[viii] I could give a host of multiple examples, including phishing schemes, where imposters send communications appearing to come from legitimate sources, to collect victims’ personal and financial data while potentially infecting their devices by convincing the target to download a malicious attachment or click malicious links.[ix]

Scammers may also impersonate legitimate charities or create sham charities, taking advantage of the generosity of the public and embezzling donations intended for COVID-19 response efforts.[x]

As to other communication methods, criminals often use social media accounts, door-to-door collections, flyers, mailings, telephone and robocalls, text messages, websites, and emails mimicking legitimate charities and non-profits to defraud the public. These operations may include words like “relief,” “fund,” “donation,” and “foundation” in their titles to give the illusion that they are a legitimate organization.[xi]

Money Mule Schemes

You may not have heard this term before. It’s a pretty nasty activity. A money mule is “a person who transfers illegally acquired money on behalf of or at the direction of another.”[xii] Money mule schemes, including those associated with the COVID-19 pandemic, span the spectrum of using unwitting, witting, or complicit money mules.[xiii] An unwitting or unknowing money mule is an individual who is “unaware that he or she is part of a larger criminal scheme.”

This crook is motivated by a host of reasons, most of them not worth mentioning.[xiv] A witting money mule is an individual who “chooses to ignore obvious red flags or acts willfully blind to his or her money movement activity.” The individual is motivated by financial gain or an unwillingness to acknowledge his or her role.[xv] A complicit money mule is an individual who is “aware of his or her role as a money mule and is complicit in the larger criminal scheme.” The individual is motivated by financial gain or loyalty to a criminal group.[xvi]

During the COVID-19 pandemic, U.S. authorities have been detecting recruiters using money mule schemes, such as good-Samaritan, romance, and work-from-home schemes.[xvii] In work-from-home schemes, for instance, COVID-19 money mule recruiters, under a false charity or company label, approach targets with a seemingly legitimate offer of employment under the pretense of work-from-home jobs, often through Internet or social media advertisements, emails, or text messages. Once the target accepts the “employment,” he or she receives instructions to move funds through accounts or to set up a new account in the target’s name for the bogus “business.” The target (i.e., the money mule) earns money by taking a percentage of the funds that he or she helps to transfer per the instructions of the bogus “employer.”[xviii]

U.S. authorities also have identified criminals using money mules to exploit unemployment insurance programs during the COVID-19 pandemic.[xix]

Thursday, July 30, 2020

Prescreened Advertisements

I am the CEO of our company, and we were recently referred to your firm for assistance with our review of advertisements. We’re currently talking to your people about making sure we have reliable advertising review procedures. And we’ve already purchased your advertising manual. We hope to engage Lenders Compliance Group to work with us on our advertising procedures.

We do a lot of direct mail pre-approvals. I am writing to you because I am concerned about two recent consent orders from the CFPB that involve direct mail. Both of these cases involve direct mail advertising issues, caused by prescreening, relating to VA loans in particular.  

I want to do whatever is necessary to comply with proper prescreening procedures.

What are some basic procedures we need to be following on our prescreened advertisements?

Thank you for your question. It is a timely inquiry. The two companies are Sovereign Lending Group, Inc. (“Sovereign”) and Prime Choice Funding, Inc. (“Prime Choice”). The CFPB issued consent orders to both of them on July 24th. These actions stem from the Bureau’s sweep of investigations of multiple mortgage companies that use deceptive mailers to advertise VA-guaranteed mortgages. Some state banking departments have been actively pursuing similar examinations and enforcement.

In the case of Sovereign, the consent order requires the company to pay $460,000 in civil monetary penalties and imposes requirements to prevent future violations. In the case of Prime Choice, the consent order requires the company to pay $645,000 in civil monetary penalties and imposes requirements to prevent future violations. In both cases, the principal means of advertising is through direct-mail campaigns targeted primarily at the United States military service members and veterans.

The Bureau alleged that Sovereign sent consumers hundreds of thousands of mailers for VA-guaranteed mortgages that contained false, misleading, and inaccurate statements or that lacked required disclosures, in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts and practices, the Mortgage Acts and Practices – Advertising Rule (“MAP Rule”), and Regulation Z. Sovereign allegedly sent consumers numerous advertisements for VA-guaranteed mortgages that, among other things, misrepresented the credit terms of the advertised mortgage, misleadingly described an adjustable-rate mortgage as having a “fixed” rate, falsely stated that the consumer had been prequalified for the advertised mortgage, created the false impression that Sovereign was affiliated with the government, used the name of the consumer’s current lender in a misleading way, and failed to include multiple disclosures required by Regulation Z.

With respect to Prime Choice, the Bureau alleged that the company sent consumers millions of mailers for VA-guaranteed mortgages that contained false, misleading, and inaccurate statements or that lacked required disclosures, in violation of the CFPA’s prohibition against deceptive acts and practices, the MAP Rule, and Regulation Z. Prime Choice allegedly sent consumers numerous advertisements for VA-guaranteed mortgages, causing violations similar to those made by Sovereign.

There are several acceptable reasons for obtaining and using consumer reports, one of which is the intent to use them in connection with a prescreened “firm offer of credit or insurance.” This use is often referred to as “prescreening.” This type of marketing requires considerable regulatory compliance knowledge and support. Most financial institutions do not have the adequate level of expertise needed to review such marketing techniques to know how to prevent deceptive acts and practices, ensure compliance with the MAP Rule, and comply with Regulation Z.

Retaining a firm like Lenders Compliance Group for such support should be part of your prescreening review process. Just one, single error in prescreened marketing can cost considerable financial and regulatory risk. Please contact me HERE if you want to talk about your compliance concerns.

Your institution engages in prescreening activities if it either: 
  • Obtains specific customer authorization for any prescreening; or
  • Extends a firm offer of credit or insurance to each consumer identified by the prescreening.

The firm offer must be honored if the consumer is determined, based on information in a consumer report, to meet the specific criteria used to select the consumer for the offer.

There are several factors that you will need to state in your policy and implement in your procedures (and those procedures should be tested periodically). Four factors come to mind: disclosure, the record of criteria, opt-outs, and limited information. I will provide a brief overview of each factor.


With each prescreened solicitation, your institution should provide a clear and conspicuous statement that:
  • Information contained in the consumer’s consumer report was used in connection with the transaction.
  • The consumer received the offer of credit because the consumer satisfied the criteria for creditworthiness or insurability under which the consumer was selected for the offer.
  • If applicable, your institution may choose not to extend credit if, after the consumer responds to the offer, the consumer does not meet the criteria used to select the consumer for the offer or any applicable criteria bearing on creditworthiness or insurability or does not furnish any required collateral.
  • The consumer has a right to prohibit information contained in the consumer’s file with any consumer reporting agency from being used in connection with any credit or insurance transaction not initiated by the consumer. The consumer may exercise the right by notifying a notification system set up for that purpose.
  • Includes the address and a toll-free number for the notification system.
  • Is presented in a format, type size and manner that is simple and easy to understand, in accordance with FTC regulations (not yet adopted as of the date of publication of this book).

Record of Criteria

Your institution should keep on file the criteria used to select consumers for any prescreened offer.

Examples of criteria would include: 
  • All criteria bearing on credit worthiness or insurability, as applicable, that are the basis for determining whether to extend credit or insurance pursuant to the offer.
  • Any requirement for the furnishing of collateral as a condition of the extension of credit or insurance, until the expiration of the three-year period beginning on the date on which the offer is made to the consumer.


Any prescreening must not include customers who have opted out of prescreening.

Limited information

In connection with any prescreening, your institution should receive from the consumer reporting agency only: 
  • The name and address of each consumer.
  • An identifier not unique to the consumer and used solely for the purpose of verifying the identity of the consumer.
  • Other information pertaining to a consumer that does not identify the relationship or experience of the consumer with respect to a particular creditor or other entity.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Friday, July 24, 2020

Cancelling the Rescission

We service our own mortgage loans. Our foreclosure attorney has told us that we can foreclose on a property even though the borrower canceled the rescission over six years ago. 

The borrower sent a letter to us, canceling the loan after the closing. But then he canceled the rescission by telling us that he wanted to go ahead with the loan. So, our manager wrote in the margin of the letter “cancellation canceled.” 

Our borrower was current until this year. But he fell far behind and went into default. We tried to foreclose, but the borrower now says he rescinded, so he claims that we can’t foreclose. Our attorney says we can foreclose. 

We have no other document that shows the borrower canceled the rescission, only our own employee’s margin note - “cancellation canceled” - in the borrower’s letter. 

So, did he cancel the rescission?

‘Tis the stuff of litigation! 

I bring you good tidings, as it favors your attorney’s view. 

But it is possible that your borrower will hire an attorney to oppose the foreclosure. Before proceeding with the good news, you can let out a rant now at the borrower’s attorney, who may take up your borrower’s cause.

I suggest Kent’s rant, in King Lear: 
A knave; a rascal; an eater of broken meats; a
base, proud, shallow, beggarly, three-suited, hundred-pound, filthy, worsted-stocking knave; a
lily-livered, action-taking knave, a whoreson, glass-gazing, super-serviceable finical rogue;
one-trunk-inheriting slave; one that wouldst be abawd, in way of good service, and art nothing but
the composition of a knave, beggar, coward, pandar,   
and the son and heir of a mongrel bitch: one whom I
will beat into clamorous whining, if thou deniest
the least syllable of thy addition.
Ah! Now that feels better. So, now, let’s proceed with the good news.

Regulation Z [§ 1026.23(a)(3)] allows a consumer to exercise the rescission right until the third “business day” following the last in time of the following events:
  • Consummation of the (consumer) credit transaction;
  • Delivery of the notice of right to rescind, as required by Regulation Z § 1026.23(b);
  • Delivery of all “material disclosures.”

Upon receipt of a rescission notice that complies with Regulation Z, a creditor must, within 20 days,
“return to the obligor any money or property given as earnest money, down payment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction.”
I’m going to use a case to support the view that your attorney is correct. 

A New Jersey state court recently considered a situation similar to this one, where a borrower exercised her right to rescind in a timely manner, then accepted the loan proceeds and made timely monthly payments for five years.

Here’s what happened.

On April 21, 2004, Dicicco executed a fixed-rate note in favor of Full Spectrum Lending, secured by a mortgage on her residence. The next day, on April 22, 2004, Dicicco sent a notice of cancellation to the lender. The lender failed to unwind the transaction and proceeded to disbursement. The record does not indicate when Full Spectrum received the notice, but the parties did not dispute that Full Spectrum failed to unwind the transaction and proceeded to disburse the loan funds to Dicicco.

At closing, Dicicco used the proceeds to pay off a prior mortgage in the amount of $226,357.33 and a tax bill in the amount of $1,483.66. She also received a cash payment of $38,457.91.

She made timely monthly payments for about five years, then defaulted in March 2009. Bank of N.Y. Mellon, as assignee of the mortgage, began foreclosure proceedings.[i]

Dicicco answered, alleging that the bank “lack[ed] standing to prosecute” because it or Full Spectrum had “failed to comply with TILA by failing to honor…[Dicicco’s] written rescission notices as required by TILA…and Regulation Z.” She argued that her notice of rescission had been sent prior to disbursement and that pursuant to TILA the mortgage and note were deemed null and void, and therefore she had no obligation to pay.

The bank moved for summary judgment and to strike Dicicco’s answer and counterclaims. Dicicco cross-moved for summary judgment, saying the complaint should be dismissed because
“there does not exist a valid mortgage on the premises as the transaction was canceled in accordance with TILA and Regulation Z."
Here is where it gets interesting, in that it shows the argument advanced by Dicicco’s attorney.

At a summary judgment hearing, Dicicco’s counsel argued that Dicicco’s five years of timely payments were undertaken simply to “preserve the status quo” and because Dicicco was trying to preserve her position concerning her loan so that when [Full Sprectrum] did unwind it she would not be behind.” The counsel concluded that “any payments that she made were…at best…received as a gift by [Full Sprectrum]…and [Dicicco] has no further obligation.” Decicco maintained that TILA supported a conclusion that “upon rescission the loan was void” and she was “required to tender back the loan proceeds…only after [Full Spectrum] performed its statutory obligations.”

The bank acknowledged that it “doesn’t dispute the fact that a valid notice of rescission was sent [by Decicco to Full Spectrum]” and agreed that Full Spectrum had received the notice to cancel yet still tendered the loan proceeds to her. The bank also acknowledged that, under TILA, Dicicco “was not obligated to return the cash that she received…immediately, because…[she was] not obligated to return those funds until…[Full Spectrum] acted.”

The trial court granted summary judgment for the bank. It rejected the bank’s arguments that Dicicco’s claims were time-barred by TILA. Dicicco was entitled to raise violations of TILA as a defense in the foreclosure action.

Even so, the April 2004 notice of rescission did not bar foreclosure given Decicco’s “subsequent and consistent ratification of the terms of the loan” by choosing to keep the funds and make timely payments for 5 years. The trial court found that Dicicco must have considered the mortgage and note enforceable because it was unlikely that she would have continued sending monthly payments to a creditor to whom she believed nothing was owed.

The court also declined to unjustly enrich Decicco, stating that to escape foreclosure on these facts would “render the proceeds of the [m]ortgage a windfall to [Dicicco], who would then be free of any obligation under the [n]ote” and the bank would be left without recourse to pursue the amount loaned by Full Spectrum. The Office of Foreclosure entered judgment for $445,554.90, plus interest and costs.

The appellate court affirmed. Dicicco had ratified the terms of the loan by commencing payment and continuing to pay for 5 years. The court said that the 2015 ruling in Jesinoski did not apply to a case of ratification and did not stand for the proposition that a creditor under these circumstances loses all interest in the property resulting in the borrower getting a free house.[ii] Dicicco did not tender the residence or the proceeds of the loan to Full Spectrum or the bank following the notice of rescission.

I have written extensively about the Jesinoski decision. See my article Right of Rescission after Jesinoski v Countrywide.[iii]

Jesinoski did not overturn precedent that “a notice of rescission is not effective if the obligor lacks either the intention or the ability to perform, i.e., repay the loan” nor did it overturn a court’s discretion to modify rescission procedures. DiCicco clearly intended to repay the loan, as she performed in accordance with its terms for years and used its funds to pay off a prior mortgage and other debts, and also retained $38,457.66 of the proceeds.

Thus, to allow Dicicco to void the mortgage and escape foreclosure would lead to her unjust enrichment.

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

[i] Bank of N.Y. Mellon v. Dicicco, 2020 N.J. (App. Div. Feb. 3, 2020)
[ii] Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. 259 (2015). This case pivoted on the language of 15 U.S.C.S. § 1635(a). The ruling, briefly put, said that (1) the rescission was effected when a borrower notified the creditor of his intention to rescind; (2) so long as the borrower notified within three years after the transaction was consummated, his rescission under the Truth in Lending Act was timely, and there was no requirement that a borrower sue within three years; and (3) The borrowers' complaint was improperly dismissed as untimely where they had mailed the lenders a written notice of their intention to rescind within three years of their mortgage loan's consummation, and that was all that was required in order to exercise the right to rescind under the Act.
[iii] Right of Rescission after Jesinoski v Countrywide, Foxx, Jonathan, Lenders Compliance Group, March 6, 2015