WE’RE HEARING…that among the many originator-related concerns the Consumer Financial Protection Bureau is keeping tabs on are violations of the Real Estate Settlement Procedures Act and the potentially less-noticed Gramm-Leach-Bliley Act privacy rule.
While the privacy rule hasn't changed recently, the regulator with authority over the area has, and with CFPB officials in charge, “nobody knows exactly the approach they are going to take, or how stringent they will be,” Ted Dreyer, senior attorney, Wolters Kluwer Financial Services, tells me.
I generally hear that originators are aware of RESPA rules governing “the exchange of anything of value in return for a referral,” given that, as Dreyer notes, penalties for illegal kickbacks in this area are pretty severe and can even have criminal penalties.
But while the privacy rule's risks have been historically smaller, they can still potentially be significant, the attorney tells me.
“Regulators have a lot of flexibility in terms of imposing civil money penalties or something of that nature,” he tells me. “If they felt it was an extreme situation, it’s pretty much wide open in terms of what they could do.”
But perhaps more worrisome when it comes to privacy rule risks is that I have heard some uncertainty on the part of some originators about how they should be adhered to in the context of Realtor referrals, so I asked Dreyer to clarify.
“The referral of business is an issue if…the lender thinks [an unaffiliated] Realtor may be able to help them because they know the person is thinking about doing a real estate transaction” and the borrower does not already have a business relationship with the Realtor, he tells me.
“The bank has to have a policy for allowing nonaffiliates to market to their customers,” Dreyer says. “Before they can do that, they have to give notice and the consumer would have to have had the option of indicating that they do or do not want that information shared. If the consumers said they did not want the information shared, then it could not be done.”
He also notes that “the federal law in that regard is the floor. There are some states that in fact do provide more protection for the consumer.”
In California, for example, instead of being able to share this type of information if the consumer does not opt out, the state “allows it to be shared only if the consumer opts in and says, ‘Yes you can share this type of information.’”
I have heard some confusion from originators surrounding whether a previous consumer business relationship with the Realtor involving a separate transaction would change the situation, so I asked Dreyer about this.
“Even the fact that the consumer has a customer relationship with the financial institution is nonpublic personal information. So for the lender to even say, ‘This is one of our customers,’ is nonpublic personal information,” Dreyer says. “So, for example, if they were to say, ‘this is a good customer of ours. This is a customer with a lot of money,’ or ‘This is a customer that does a lot of real estate business’…that would be covered by the restriction on sharing” if it involved a consumer transaction like a home mortgage.
It is a different story if the consumer, for example, asks for help finding a Realtor. “You do not need to protect the consumer when it is their idea,” he says.
Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.