Thursday, July 2, 2020

CARES Act: Relief Protection

We are a large servicer with three regional offices. I am the compliance manager for one of those offices. Our Chief Compliance Officer reads your weekly FAQs, as do I and the compliance staff in all our offices

Our CARES policy has gone through several iterations. We want to provide a brief outline of two real estate categories that are given relief under CARES. This outline will be in our policy’s first section and will also be given to our operations personnel.

What types of relief are available for the two categories of one-to-four family real estate and multifamily real estate?

We also want to know what relief protections are available for renters in multifamily real estate?

Thank you for your question! I appreciate your continuing interest in our weekly FAQs.

The Coronavirus Aid Relief and Economic Security Act (CARES Act) contains several provisions that address mortgage and rental relief. I will provide a brief outline here regarding the relief available. But I suggest you consider my outline in tandem with, among other things, the provisions in sections 1024.39 through 1024.41 of RESPA (Real Estate Settlement Procedures Act).

First, I will offer an outline of the type of relief available, depending on the type of property involved. Second, I will address your question about renter protection.

One-to-Four Family Real Estate

Section 4022 (Foreclosure Moratorium and Consumer Right to Request Forbearance) of the CARES Act grants forbearance rights and protection against foreclosure to borrowers with a federally backed mortgage loan.

Thus, for this purpose, a federally backed mortgage loan is any loan that: 
  • Is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from one to four families.
  • Is federally owned or otherwise backed by one of the following federal agencies and entities:
  • U.S. Department of Housing and Urban Development (HUD);
  • U. S. Department of Agriculture (USDA);
  • USDA Direct;
  • USDA Guaranteed;
  • Federal Housing Administration (FHA);
  • U.S. Department of Veterans Affairs (VA);
  • Fannie Mae; and
  • Freddie Mac.

Borrowers with a federally backed mortgage loan, who are experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency may request a forbearance on their loan, regardless of delinquency status, by submitting a request (viz., an attestation) to their servicer. They must explicitly affirm that they are experiencing financial hardship during the COVID-19 emergency.

Upon receiving a request for forbearance, a servicer must provide forbearance for up to 180 days, with no additional documentation required, other than the borrower’s attestation to a financial hardship caused by the COVID-19 emergency. Importantly, no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract) may be charged to the borrower in connection the loan.

At the request of the borrower, the forbearance period may be extended for up to an additional 180 days, provided that the borrower’s request is made during the covered period. The initial or extended period may also be shortened at the borrower’s request.

Excluding vacant or abandoned properties, a servicer of a federally backed mortgage loan may not initiate any judicial or nonjudicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for 60 days beginning on March 18, 2020.

Multifamily Real Estate

Loans secured by multifamily property are addressed in section 4023 of the CARES Act. These provisions apply to federally backed multifamily mortgage loans, including 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; and,
  • 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. Such a request may be verbal or written. The borrower can discontinue forbearance at any time.

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 2 additional periods of 30-days each, provided that such request is (1) 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 (2) made at least 15 days prior to the end of the original 30-day period.

Renter Protections

For the duration of the forbearance, a multifamily borrower receiving forbearance may not: 
  • 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; and
  • Require a tenant to vacate a dwelling unit on the applicable property based on fewer than 30 days’ notice (and such notice may not be issued during the forbearance period).

I would also note that a related provision of the CARES Act operates to provide a temporary moratorium on eviction in certain properties, including those that have a federally backed multifamily mortgage loan. 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 nonpayment of rent or other fees or charges.
  • Charge a 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 based on fewer than 30 days’ notice, and such notice may not be issued during the 120-day period. Note, also, that the moratorium imposed by this provision applies irrespective of whether the borrower has sought or is granted forbearance relief as discussed above.

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

Friday, June 26, 2020

Influencer Guidelines for Financial Institutions

We have affiliates that sell products and services. As the Compliance Manager, I was recently tasked by our CEO to make sure that we are not giving the impression that we’re recommending something being sold by our affiliates, even if our websites already mention their products and services. This seems like a contradiction. 

On the one hand, we are told to not recommend the affiliates’ products and services, and, on the other hand, we are told to make sure our websites mention them. 

Are there some guidelines we can follow to make sure we are not promoting the products and services while also mentioning them on our websites?

These days, there is a term for the power to affect the purchasing decisions of others. It’s called an “influencer.” You may have heard this term in the last few years. It is associated often with social media. The influencer is somebody who supposedly has the authority, knowledge, relationship, position, expertise, experience, and competence to “influence” somebody’s purchasing decisions. In fact, there are courses now available for people to learn how to be an influence!

The world of financial services has its own form of influencers. And the scenario you describe is one such instance where influence crosses into regulatory territory. That territory is the regulatory framework of the Federal Trade Commission (FTC). Using the FTC standards, it is possible to provide a set of guidelines that, hopefully, will make it possible for you to both mention the affiliates’ products and services without giving the impression that you are promoting them without proper disclosure.

The FTC has the power to issue trade regulation rules declaring acts, practices, and conduct in or affecting interstate commerce to be unfair or deceptive practices. As a point of reference, Dodd-Frank generally displaced the FTC with the CFPB as the coordinator of consumer complaints and principal regulator regarding consumer financial products or services provided by banks, federal savings association, and nonbank creditors (except for motor vehicle dealers).

Prior to the enactment of Dodd-Frank, the FTC Act required banking regulators to issue similar rules within 60 days after an FTC rule’s effective date, unless the banking agency found that similar acts and practices of depository institutions were not unfair or deceptive. Although, Dodd-Frank deleted this requirement, financial institutions may still find it worthwhile to understand FTC rules, if only to understand the rules with which their FTC-regulated competitors must comply.

So, the following is a brief list of guidelines that my firm would be considering if we were doing an audit your scenario. It is based on years of working with FTC standards and website reviews. If we were to do an audit, there would be many other moving parts to consider, including an influencer disclosure review, but I think this outline will give you a head start!

Influencer Guidelines for Financial Services Affiliates 
  • The institution (“influencer”) should clearly and conspicuously indicate the relationship between the influencer and its affiliate (i.e., “we’re affiliated companies owned by the same parent company”).
  • If the other company (the affiliate) gives the influencer a benefit in return for mentioning its products and services, the influencer should mention that benefit (i.e., “we receive [compensation/similar promotion by [the other firm]] in return for mentioning its products and services”).
  • The influencer should treat tags, likes, pins, and similar ways of showing the influencer likes a product or service as endorsements that require disclosures.
  • The influencer should place each disclosure so it’s hard to miss. A disclosure should appear along with the endorsement message and should not appear only if the viewer must click more to reach it.
  • The influencer should not mix the disclosure with a group of hashtags or links, although the disclosure could include a hashtag such as #ad or #sponsored.
  • If an endorsement appears in a picture on a platform like Snapchat or Instagram Stories, the disclosure should be superimposed over the picture in a way that ensures viewers have time to notice and read it.
  • If the endorsement appears in a video, a disclosure should appear both in audio and in video as part of the video and not just in a description uploaded with the video and not only in words superimposed on a video.
  • If the endorsement is made in a live stream, the disclosure should be repeated periodically so viewers who see only part of the stream will get the disclosure.
  • Disclosures should use simple and clear language, without vague or confusing terms such as uncommon abbreviations or shorthand.
  • A disclosure should be in the same language as the endorsement.
  • An influencer should not assume that a platform’s disclosure tool is sufficient, but should consider using that tool in addition to the influencer’s own, good disclosure.
  • An endorsement should be honest and truthful. For example, an influencer should not mention experience with a product the influencer has not tried, or say the product is terrific if the influencer thinks it’s terrible, or make up a claim that would require proof the influencer does not have.
  • The influencer should ensure its disclosures are made, not rely on someone else to make them.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group

Friday, June 19, 2020

Pandemic Response: Preparing for the Second Wave

We have followed many of the suggestions in your Business Continuity Checklist, especially the parts that deal with the pandemic response. We purchased your Business Continuity Plan. 

The problem we now have relates not to the present but the future. Specifically, we are worried about the possibility of a second COVID-19 wave. Our compliance people are grappling with how to handle a second wave. 

Our question is, what do we do now about preparing for the second wave of COVID-19?

I am grateful that you are using the Business Continuity Plan Checklist and Workbook, Includes Pandemic Response. As you know, the Checklist is free and provided as a courtesy to enable companies to manage business continuity. It has a large section that deals specifically with pandemic responses in general and the COVID-19 pandemic in particular. It also contains numerous resources and references. We are the only compliance firm in the country that has published such a helpful tool, which is now on Update # 7, consisting of 208 pages. You can download it HERE. Update # 8 will be published shortly.

Thank you for buying the Business Continuity Plan (“BCP”). Yesterday we notified media and our subscribers about our Business Continuity and Pandemic Response Plan, which we decided to offer at a deeply reduced rate to make it affordable to most companies. Even still, how could companies afford not to buy it, considering their very survival depends on business continuity? Waiting is really not an option. Our BCP is extensive, detailed, and dynamic. And we even provide a walkthrough of the document with one of our subject matter experts at no additional fee. You can order it HERE.

For the first wave response, I have outlined operational issues as well as pandemic challenges. For some recent posts, go HEREHEREHEREHERE, and HERE.

Your question is important. I do not want to be the bearer of bad tidings, but the second wave could be worse than the first – and, realistically, we are not out of the first. As I write, some states are seeing a record number of hospitalizations, and a few are reaching maximum capacity in their ICU units. Thousands are becoming infected every month. Currently, the United States has 2.2 million confirmed cases; 16,500 are now critical; and over 118,000 have died to date.[i] There have been about 27 million tests done in a population of 330 million, or only 8%, with 1.2 million active cases and over 931,000 recovering cases. There is insufficient educating; insufficient testing; insufficient contact tracing; insufficient wearing of masks; and insufficient social distancing.

Even if a person has no symptoms, that person can spread the disease. The CDC estimates that 40% of transmissions happen before people feel sick.[ii] I have seen studies that show upwards of 4-5 people can become infected by contact with persons who did not think they had the disease. Whether testing is done or not done, the infection rate is not changing. One has nothing to do with the other. However, testing tells us the epidemiological factors involved in the rapid geographic spread of the disease and the measures needed to contain it. Not testing at a high rate is tantamount to denying the ever-increasing risk.

Surely, denying the presence of a catastrophic plague is the worst form of response.

Over 40 million people have filed for initial unemployment. Everyone wants the economy to improve, but, in the long run, it just can’t improve without good hygiene being pervasively practiced. 

Here’s a simple algorithm for wearing a face mask for those people who think they don’t need to wear a face: 
Wearing a face mask leads to less asymptomatic viral spread,
which leads to more of the economy opening sooner. 

Delay the response; delay the revitalized economy.

We should be clear about what is meant by “asymptomatic spread.” The asymptomatic spread is a condition where the transmission is by people who do not have symptoms and will not get symptoms from their infection. But those infected carriers could still get others infected. Also, there is “pre-symptomatic spread.” The pre-symptomatic spread is a condition where the transmission is by people who don’t look or feel sick but will eventually get symptoms later. Obviously, they too can infect others without knowing it.

Pandemics usually occur in waves. Infections spike, peak, plateau, and even recede – but the infection rebounds again later. This process may happen several times. It is the pattern of the pandemics in 1918-1919 with Spanish flu, 1957-58 with the H2N2 virus, and 2009-2010 with the swine flu.

I have written previously that the second wave of a pandemic is often worse than the first. I understand that people want to return to “normal,” but that simply cannot happen at this time. The CDC predicts that there could be upwards of 200,000 deaths caused by COVID-19 by the fourth quarter.[iii] Given that Federal authorities have mostly left it to the states to effectuate good hygiene orders, and many states maintain that they will not shut down a second time – although some states never shut down at all in this first wave – the reduction of infections and deaths seem as far away as ever. After all, when a state runs out of ICU beds, it really has no other choice, ethically speaking, but to shut down.

Yet a second wave is coming. And that means a second shut down is possible. For instance, Japan has had to shut down geographical areas of resurgence. Other countries have been shutting down, where resurgence has occurred. There are now surging spikes in several states, and ICU units are reaching capacity. Because COVID-19 has a lengthy incubation period, to wit, 3 to 14 days (with symptoms often appearing within 4-5 days after exposure), during that first 72 hours, a person can transmit the virus to others.

Let’s view our current circumstances as being in the first wave, one that has not ended, but reduced somewhat in parts of the country, plateaued in other parts, and surging in other parts at an astonishing speed. Let’s also assume that the second wave is coming in the fourth quarter 2020. Given that situation, we can do two things: (1) maintain now as much good hygiene as possible in our pandemic response to the first wave; and (2) prepare carefully for the second wave.

So, what lessons have we learned thus far? And what should you do in preparation for the second wave of the COVID-19 pandemic? I will outline the action items you should be considering and implementing.

1. Preparation

Anticipate the continuation of first wave hygienic activities. Get a sense of how your organization is responding to the current pandemic challenges and how much time remains before the second wave hits.

2. Proactive

Do not let your organization become the victim of denial. Be proactive. Determine the strengths and weaknesses of the current pandemic response. Refine the actions taken and document them.

3. Business Continuity Plan

Be sure that you view the Business Continuity Plan as a dynamic document that will change over time. It is not a fixed, unchanging set of procedures, but will need to change in response to real-world challenges.

4. Communication - Internal

Maintain on-going communications between management and employees. Use various media to communicate news, testing criteria, and revised guidelines. Be sure to fact check and correct misinformed information provided by any sources that are not credentialed scientists and doctors trained in relevant fields.

5. Communication – External

Synchronize internal (within the organization) and external (outside the organization) news, procedures, announcements, and actions.

6. Absenteeism

Use these four criteria to minimize and monitor absentee employees: (1) essential to report to the workplace; (2) essential but can work remotely; (3) non-essential but can work remotely; and (4) non-essential and not necessary to work remotely.

7. Crisis Management

Periodically assemble a crisis management team consisting of senior management, department heads, business line leaders, and internal administrative staff (i.e., HR, IT, legal, finance, compliance). Document the meetings and discuss ways and means to stay current with challenges to business continuity.

8. Geography

If the organization is multistate, geographic challenges present themselves. Each remote branch office or regional vector should have a reporting chain to senior management for business continuity and pandemic response concerns. The Business Continuity Plan should take remote offices and regions into consideration.

9. Drills

Implement exercises to test various realistic scenarios. The COVID-19 virus is a “long tail” virus,[iv] so doing scenario exercises will keep the organization in a state of readiness and functioning in a safe environment.

10. Recovery

Be willing to transition to a more recovered posture, if events allow for recovery. The recovery state is part of business continuity, but not without pitfalls. Recovery does not just mean business-as-usual. It means ensuring that the crisis may be past, though it is not a time to let down your guard. 

Some crises do cease to exist, and, to that extent, the organization may still remain with periodic testing. However, some crises do not cease to exist: only the current risk of them happening has been reduced. Pandemics are the latter case. Do not be caught blind-sided by relaxing your pandemic response to the point that you end up making the same mistakes in the next wave.

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

[i] As of 6/19/20 at 7:33AM (EST) Coronavirus Resources Center, Dashboard, Johns Hopkins University and Medicine, See
[iii] US could see 200,000 coronavirus deaths by September, Woods, Amanda, June 11, 2020, NY Post
[iv] A “long tail risk” is one that, from a risk point of view, is “between the start of the exposure and the manifestation of loss or damage resulting from the exposure.” International Chamber of Commerce

Thursday, June 11, 2020

Pandemic Response: Whistleblower Retaliation

I am an underwriter in a large lender. We have offices in 30 states, with a main office in the Midwest. I work at the main office.

I want to know about how to go about handling a whistleblower complaint without having my boss fire me.

My concern is that we were required to return to the office, even though the office was not set up for protecting us from COVID-19. Now, two underwriters and a few processors have come down with COVID-19 and are in quarantine.

If we don’t come in, we have been told we will be replaced. I need this income and the health benefits and can’t survive without them.

We met with senior management a couple of weeks ago, but they have done nothing. Basically, we feel they don’t care. So, I want to report them to the authorities without winding up getting myself fired.

My question is, what protection do I have from getting fired if I report this unhealthy environment?

I sympathize with your situation. Unfortunately, your question is not the first of its kind that we have received. It is a significant concern when management does not ensure a healthy work environment. It seems that you have already researched which authorities should be contacted. But, having done so, you believe you may be fired for reporting the problem.

When an illegitimate and illegal firing takes place for reporting the potential of violations of law in a commercial entity, this is called Whistleblower Retaliation. 

In general, whistleblower statutes aim at encouraging employees to speak out and act when they see illegality, so as to eliminate corruption while protecting the employees who “blow the whistle.” There is some case law based on statutes where an employee is not protected who stands by and takes no action. So, it sure does feel like ‘damned if you do, and damned if you don’t!’

I will not comment about the illegality of this matter, but I suggest you contact a labor lawyer licensed to practice law in the state where the main office is located. You may find that some of these lawyers are more interested in representing employers than employees. But there are plenty who will want to get involved. Make sure you bring other employees with you. I think whistleblower retaliation may be mitigated if you retain appropriate legal counsel.

But, let’s view that choice as a last resort. First things first: I suggest finding a way to broaden the discussion with management in a proactive and helpful way. It may be that they want to work collaboratively with employees but there is no structural method in place to benchmark one another.

Download our Business Continuity Plan with Pandemic Response – Checklist and Workbook (“Checklist”). This document is now in its 7th update, and the 8th is going to be published shortly. It is free! It has been downloaded by thousands of people at this point, including regulators, executive, senior, and middle management, and indeed many employees, rank and file. So, you’re in good company, and you can make a case for using it for a working relationship with management.

Read through the Checklist and decide on how to present your view in a coherent way. Take the Checklist to management and request an opportunity to discuss the sections that pertain to your particular needs and concerns. Give a copy of the Checklist to management or give them the link to download the Checklist

Appoint a committee of employees to work with management in fulfilling the expectations. Meet regularly to benchmark one another. You may find that opening communications is the best way to ensure a healthy working environment.

To assist with opening such communications with management, advocate for your view by drawing on a few talking points. Some reliable talking points are set forth in our recent FAQ: Pandemic Challenges: Returning to the Office.

Good luck! Stay Safe!

Jonathan Foxx
Chairman & Managing Director
Lenders Compliance Group

Thursday, June 4, 2020

Compliance Officer: Job Description

We are looking to hire a new compliance officer. As we put together the job description, we wanted to be sure we listed gave a full description of the position. That led us to your door.

We know that you offer continual compliance support, so you would know the best way to describe the responsibilities of a compliance officer. 

Our plan is to use the description in our policies and procedures as well as in our job advertisement. 

What is a compliance officer and how should we describe the responsibilities?

Thanks for knocking on our “door!” Yes, we provide on-going mortgage compliance guidance. In fact, our firm is the first compliance firm in the country to offer low cost, fixed fee, monthly compliance support, manned by subject matter experts and supervised by professionals with substantial experience, knowledge, and expertise.

Many companies, large and small, retain us as an independent adjunct to their compliance department. Others use us primarily as a proxy for an in-house compliance department. Whatever the case, we are highly experienced in working with management and compliance personnel.

If you’re interested in knowing more, please contact me HERE

You’ll be glad you did!

I am going to provide a brief job description for a compliance officer in a format that you can use both for your policy and procedures and also your job advertisement. I outline the format according to topical expectations.

Job Description
  • Compliance Officer position is designated by the Board of Directors.
  • Responsible for establishing and maintaining an ongoing compliance program.
  • Administers compliance training program for officers and employees.
  • Works closely with internal or external legal counsel, if needed.
  • Performs or retains auditors to perform audit programs.
  • Reviews audit results and maintains audit standards.

  • Reports to: Chairman of the Board
  • Supervises: Compliance Initiatives

Duties and Responsibilities
  1. Develops compliance policies and procedures.
  2. Responsible for the implementation of new regulations or changes to existing regulations.
  3. Ensures compliance with legal and regulatory standards for originating loans and mortgage servicing.
  4. Assists in updating and reviewing bank policies and procedures based on regulatory changes, internal audits, and examinations by regulatory agencies.
  5. Establishes and maintain an ongoing program for training personnel.
  6. Monitors the resolution of consumer complaints.
  7. Prepares for regulatory examinations and ensure an adequate corrective action process.
  8. Reports compliance activities and audit findings to the Board of Directors.

  • The Compliance Officer accesses all departments and documentation that may be necessary to effectuate compliance responsibilities.
  • The Compliance Officer has the authority to implement corrective action upon discovering actual or possible violations.

  • The Compliance Officer supervises regular audits of all appropriate areas of the bank to determine the degree of compliance with various consumer laws.
  • Actual or possible violations and any needed corrective action should be reported to the Compliance Committee, the bank’s legal counsel, and the division and department managers of the area under examination.
  • The manager of the area under examination reports to the Compliance Officer all action taken to correct the findings detected in a compliance audit or the Compliance Officer requires the manager to perform in furtherance of the compliance mandate.

  • The Compliance Officer is a higher-level officer, familiar with all areas of mortgage banking, and possesses excellent oral and written communication skills.
  • Knowledge includes, among other things, deep familiarity with mortgage banking standards, auditing, and consumer compliance regulations.
  • Human relations skills are expected to effectively conduct compliance activities throughout the organization.

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

Thursday, May 28, 2020

Consumer Loans and TILA

I am the Associate General Counsel for a bank. Recently, the attorney for one of our credit card borrowers wanted to claim TILA protections. This request has come up several times. I wonder if you would provide some insight into this issue. 

My question, therefore, is do commercial borrowers have access to TILA protections?

I will tell you that this particular request is going to continue to come up no matter what you do. It is one of those questions that never seems to age with time!

Many lawyers know that the Truth-in-Lending Act (TILA) generally does not apply to loans primarily for business, commercial, or agricultural purposes. Portions of Regulation Z governing the issuance of credit cards and the liability for their unauthorized use apply to all credit cards, even if the credit cards are issued for use in connection with extensions of credit that otherwise are exempt

Regulation Z Comment 3(a)-2, which was added in December 2008, explains that if a business purpose credit card is issued to a person, the provisions of the regulation do not apply, other than as provided in §§ 1026.12(a) and (b) (viz., the provisions that govern card issuance and liability for unauthorized use), even if extensions of credit for consumer purposes are occasionally made using that business purpose card.

For instance, the billing error provisions of § 1026.13 do not apply to consumer purpose extensions of credit using a business purpose credit card. The comment also looks at the converse situation, and explains that if a consumer purpose credit card is issued to a person, the provisions of the regulation apply, even to occasional extensions of credit for business purposes made using that consumer purpose credit card. As an example, a consumer may assert a billing error with respect to any extension of credit using a consumer purpose card, even if the specific extension of credit on the credit card or open-end credit plan that is the subject of the dispute was made for business purposes.

Some bank lawyers have wondered whether a commercial borrower might become entitled to TILA protections if their bank funnels a commercial transaction into the consumer loan pipeline, whether intentionally or not. For example, a bank might find it convenient to handle certain types of loans, such as a loan to finance the purchase of a motor vehicle, under the same policies and procedures it applies to a consumer’s purchase of a car. Does the bank’s provision of TILA and other consumer disclosures bind the bank to TILA compliance for that loan?

I think you may want to look at a recent case for some guidance. A federal district court in Florida (in dicta) recently rejected a business borrower’s argument that the bank’s provision of TILA disclosures had bound the bank to TILA’s regulatory requirements. However, the court did not disavow the possibility of a breach of contract claim. [Penton v. Centennial Bank, 2019 U.S. Dist. (N.D. Fla. Nov. 22, 2019)].

Penton obtained a loan from Centennial Bank to purchase real estate. The loan documentation indicated the loan purpose was to “purchase investment home.”

Penton sued the bank and other defendants, alleging, among other things, that the bank had violated TILA by failing to disclose a kickback scheme among the bank and insurance providers to give the insurance providers the exclusive right to monitor the bank’s mortgage portfolio and force-place insurance.

However, the court dismissed the complaint because TILA exempts credit transactions primarily for business, commercial, or agricultural purposes.

The court rejected Penton’s argument that the promissory notes referenced TILA and therefore indicated that the parties intended to be bound by TILA. Alternatively, the court held that even if the parties had intended for TILA to govern their relationship, the bank’s failure to live up to TILA’s terms would constitute a breach of contract rather than a TILA violation.

So, the court highlighted a claim Penton should have made, but apparently did not make. He should have sued for breach of contract! If he could show that the promissory notes had incorporated the provisions of TILA – or perhaps better yet for Penton, the Real Estate Settlement Procedures Act (RESPA) – into the terms of the business loan transaction, then the lender’s failure to comply with TILA (or RESPA) would constitute a breach of contract.

Maybe you should explore that angle!

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

Thursday, May 21, 2020

Pandemic Challenges: Returning to the Office

We are starting to bring back some employees to our main office. They have a choice to work remotely or return, whatever works for them. Some employees have been infected, and others know people who have died from the coronavirus.

Our offices have a lot of open cubicles and open areas, so everyone is potentially exposed to COVID-19 issues. We want to make the space as safe as possible. We hired a consultant and did some mandatory training, but that is not having the effects we want. The consultant told us what we already know, and the training, based on our survey, did not increase confidence. So, now what? We’re frustrated.

Is there some game plan that we can follow to give people the confidence to return to the office?

Realistically, we can’t expect people to return to the office until they feel safe. Passing laws that lift the shelter-at-home requirement does not necessarily increase confidence, especially when the science and medical advice run counter to a government edict. People instinctively know that they must protect themselves, their families, and one another. You can’t legislate away the risk of contracting COVID-19.

As we go to press, the United States has confirmed 1,596,526 cases, 370,973 recovered cases, and sadly 95,057 deaths.[i] 

It is heartbreaking - all those precious lives lost! 

To understand these numbers, add the recovered cases and the deaths. Those equal 466,030. Using that total, the recovered cases (370,973) equal 80%, and the deaths (95,057) equal 20%. We may quibble about the criteria used for the statistic, but we can’t really argue about the substantial loss of life. 

Unfortunately, insufficient testing and contact tracing mean that people do not actually know their true exposure.

So, it is not surprising that employees are reluctant to return to the office.

Since March 16th, my firm has been providing a free Business Continuity Plan Checklist & Workbook, Includes COVID-19 Pandemic Response to help you navigate business continuity and the COVID-19 pandemic. It is currently in Update # 6. Update # 7 is about to be published. So, if you haven’t downloaded it yet, do so HERE. I believe it will help.

I have a few suggestions to encourage a safe office environment for returning employees. Other employees may gradually gain the confidence to return if you provide a consistent, reliable, and sincere approach. Let’s check a few actions you might want to implement. These suggestions are not meant to be comprehensive.

Meet Frequently
Schedule mandatory meetings to discuss COVID-91 pandemic challenges and updates.
  1. Meetings should be held in the office and remotely at least once a week – or more often if there’s important news.
  2. Use PowerPoints and personal interest stories to build confidence and knowledge.
  3. Use the meetings to build trust and encourage feedback from employees.
  4. Materials should be easy to understand and available in the appropriate language and literacy level for all employees.
  5. Create a portal webpage for remote and office employees to obtain news about COVID-19 and the company’s pandemic response actions.

Workplace Safety
Reduce the risk of contagion by protecting the physical conditions of the office.
  1. Install high-efficiency air filters.
  2. Increase ventilation rates.
  3. Install physical barriers, such as clear plastic sneeze guards.
  4. Install a drive-through window or counter plastic sneeze guards for customer service.
  5. Provide specialized negative pressure ventilation, where possible, for settings where people may congregate.
  6. Maintain regular housekeeping practices, including routine cleaning and disinfecting of surfaces, equipment, and other elements of the work environment.

Administrative Controls
Ideally, these controls are going to require rapport and cooperation between employees and management.
  1. Encourage sick employees to stay at home – period!
  2. Require an employee who shows signs of COVID-19 to immediately go home – period!
  3. Inform and encourage employees to self-monitor for signs and symptoms of COVID-19 if they suspect possible exposure.
  4. Develop policies and procedures for employees to report when they are sick or experiencing symptoms of COVID-19.
  5. Consider offering face masks to employees and consumers as long as these individuals are in the office. Tip: If there is a shortage of masks, the CDC has advised that a reusable face shield can be decontaminated and may be an acceptable method of protecting against droplet transmission.[ii]
  6. Minimize contact among employees, clients, and consumers by replacing face-to-face meetings with virtual communications and implementing telework, if feasible.
  7. Discourage employees from using other employees’ phones, desks, offices, or other personal items, when possible.
  8. Establish alternating days or extra shifts that reduce the total number of employees in the office at a given time, allowing them to maintain distance from one another while maintaining a full on-site work week.
  9. Discontinue non-essential travel to locations with on-going COVID-19 outbreaks.
  10. Develop emergency communications plans, including a forum for answering employees’ concerns.
  11. Provide employees with up-to-date education and training on COVID-19 risk factors and protective behaviors (i.e., cough etiquette, masks, hand washing, gloves, social distancing).
  12. Train employees who need to use protecting clothing and equipment how to put it on, use/wear it, and take it off correctly, including in the context of their current and potential duties. For instance, demonstrate how to put on and take off gloves and masks.
  13. Where appropriate, limit the public’s access to the office or restrict access to only certain workplace areas.
  14. Ensure that sick leave policies are flexible and consistent with public health guidance and that employees are aware of these policies.
  15. Talk with companies that provide contract or temporary employees about the importance of sick employees staying home and encourage them to develop non-punitive leave policies.
  16. Maintain flexible policies that permit employees to stay home to care for a sick family member. Note: Employers should be aware that more employees may need to stay at home to care for sick children or other sick family members than is usual.
  17. Provide on-going notices and updates involving employees’ concerns about pay, leave, safety, health, and other issues that may arise.
  18. Work with insurance companies (i.e., those providing employee health benefits) and state and local health agencies to provide information to employees and customers about medical care in the event of a COVID-19 outbreak.

Safe Workplace Practices
Generally, you can use procedures to reduce the duration, frequency, or intensity of a hazard if you implement relatively simple practices. Here are a few suggestions.
  1. Provide resources and a work environment that promote personal hygiene. For example, provide tissues, no-touch trash cans, hand soap, alcohol-based hand rubs containing at least 60 percent alcohol, disinfectants, and disposable towels for employees to clean their work surfaces.
  2. Require regular hand washing or use of alcohol-based hand rubs. According to OSHA, if soap and running water are not immediately available, provide alcohol-based hand rubs containing at least 60% alcohol.[iii]
  3. Post handwashing signs in restrooms.

We are all in this pandemic together. When we act, we do not act alone. Our actions affect others. Wearing a mask, for instance, is just such an action, because it protects others and simultaneously protects the person wearing the mask. When an office reopens, the best way to instill confidence is to show that the employee is not alone, because when management acts to protect its employees, it is protecting the viability of the company. Management should create that spirit, and the employees may be willing to return to the office.

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

[i] Worldometer, Coronavirus, United States 
[iii] OHSA Guidance Summary: Preparing Workplaces for COVID-19 (PDF)

Thursday, May 14, 2020

COVID-19 Pandemic: Waiting Periods and Changed Circumstance

I am a branch manager with a mortgage lender. We have offices in 20 states. My concern right now is with TRID’s waiting period requirement. 

During the pandemic, I am being told that the personal financial emergency wavier is still on a case by case basis, even though the pandemic is about as much of a financial emergency as I can think of. 

What’s the deal here? Is the pandemic considered to be a personal financial emergency?

I sense your frustration. The personal financial emergency waiver has always been controversial, especially because deciding in favor of the waiver is often a case by case decision process. The crux of the matter is a determination as to what constitutes a bona fide personal financial emergency.

For some context, under TRID creditors generally must deliver or place in the mail the Loan Estimate no later than seven business days before consummation. Consumers must receive the Closing Disclosure no later than three business days before consummation. So, we need to get into the weeds a bit to understand the issue.

Under the TRID Rule, creditors generally must deliver or place in the mail the Loan Estimate to consumers no later than seven business days before consummation and consumers must receive the Closing Disclosure no later than three business days before consummation. [12 CFR 1026.19(e)(1)(iii)(B); 1026.19(f)(1)(ii)(A)]

The Regulation Z Rescission Rules also provide consumers with at least three business days from consummation to rescind certain credit obligations secured by the consumer’s principal dwelling, and creditors are required to provide consumers with a disclosure informing them of this rescission right. [12 CFR 1026.15(a); 1026.23(a)]

After receiving the required disclosure(s), a consumer may modify or waive these waiting periods if the consumer determines that he or she needs credit extended to meet a bona fide personal financial emergency. [12 CFR 1026.15(e); 12 CFR 1026.19(e)(1)(v), (f)(1)(iv); 12 CFR 1026.23(e)]

For the waiting periods to be modified or waived, the creditor must have a dated written statement by the consumer that:
(1) describes the emergency,
(2) specifically modifies or waives the waiting period, and
(3) bears the signature of all consumers who are primarily liable on the legal obligation (for the TRID Rule) or who are entitled to rescind (for the Regulation Z Rescission Rules). [12 CFR 1026.15(e); 12 CFR 1026.19(e)(1)(v), (f)(1)(iv); 12 CFR 1026.23(e)]

In the Commentary to the TRID Rule modification and waiver provisions, there is this clarification: 
“[t]he consumer must have a bona fide personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period.”

Furthermore, the Commentary clarifies that whether these conditions are met is determined by the facts or circumstances of individual situations, and provides one example, to wit, the imminent sale of the consumer’s home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period. [See Comments 19(e)(1)(v)-1; 19(f)(1)(iv)-1]

Explicitly, the Commentary to the Regulation Z Rescission Rules waiver provision similarly states that for a consumer to waive the rescission waiting period, “the consumer must have a bona fide personal financial emergency that must be met before the end of the rescission period.” [Comment 23(e)-1]

Hopefully, now that I’ve laid out a rough sketch of the regulatory outline, let’s turn to answer your question. At the end of April, the CFPB addressed the scenario of the pandemic affecting the waiting period requirements.[i] The Bureau issued an Interpretive Rule, which would go into effect when published in the Federal Register. It was published there on May 4, 2020, so that is the effective date. [85 FR 26319, pp 26319-26321]

Pursuant to the Interpretive Rule, the following decision tree may be applied:

(1) A consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency,
(2) The consumer’s brief statement describing the emergency identifies a financial need that is due to the COVID-19 pandemic, and
(3) The emergency necessitates consummating the credit transaction before the end of an applicable TRID Rule waiting period or must be met before the end of the Regulation Z Rescission Rules waiting period,

The consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and the Regulation Z Rescission Rules.

Now, here’s a question that you didn’t ask, but is important to pose:
Is the pandemic a Changed Circumstance?
According to the Bureau, the answer is Yes.

Again, some context. Under the TRID Rule, creditors must estimate in good faith the costs that consumers will incur in connection with their mortgage transaction and disclose them on the Loan Estimate. [12 CFR 1026.19(e)(3)]

For purposes of determining good faith under the TRID Rule, creditors may use revised estimates of such costs in a limited number of situations pursuant to Regulation Z, § 1026.19(e)(3)(iv). [12 CFR 1026.19(e)(3)(iv); 12 CFR 1026.19(e)(4)(i)] One such scenario is if there are “changed circumstances” that affect the settlement charges consumers would incur. [12 CFR 1026.19(e)(3)(iv)(A)]

So, does the COVID-19 pandemic constitute a valid changed circumstance? 

Yes, it does!

The TRID Rule specifies that changed circumstances include “an extraordinary event beyond the control of any interested party,” and the Commentary clarifies that a “war or natural disaster” is an example of such an extraordinary event. [12 CFR 1026.19(e)(3)(iv)(A)(1); Comment 19(e)(3)(iv)(A)-2]

According to the CFPB, “economic disruptions and shortages during the COVID-19 pandemic may affect the ability of stakeholders to provide accurate estimates of some settlement charges.”[ii]

The CFPB has taken the position that the COVID-19 pandemic is an extraordinary event that permits creditors to provide consumers with revised estimates reflecting changes in settlement charges.

So, illustratively, for purposes of establishing good faith, a creditor could provide a revised estimate of the appraisal fee based on changed circumstances where 
(1) the amount disclosed on the Loan Estimate was based on a reasonable market price at the time of the estimate, and 
(2) the actual appraisal fee was higher because of a shortage of available appraisers due to the effects of the COVID-19 pandemic.

Explicitly, the CFPB has concluded that, as with wars or natural disasters, the COVID-19 pandemic is an example of an extraordinary event beyond the control of any interested party, and thus is a changed circumstance. 

Therefore, according to the CFPB, for purposes of determining good faith, creditors may use revised estimates of settlement charges that consumers would incur in connection with the mortgage transaction if the COVID-19 pandemic has affected the estimate of such settlement charges. [12 CFR 1026.19(e)(4)(i)]

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

[i] Application of Certain Provisions in the TILA-RESPA Integrated Disclosure Rule and Regulation Z Right of Rescission Rules in Light of the COVID-19 Pandemic, 12 CFR Part 1026, Interpretive Rule, Bureau of Consumer Financial Protection
[ii] Idem