FTC ISSUES REVISED GUIDE ON RED FLAGS RULE SO UPDATE YOUR REQUIRED RED FLAGS MANUAL
FACTS
The Federal Trade Commission has issued a revised guidance on the Red Flags Rule. The Red Flags Rule mandates certain businesses to develop, implement and administer an identity theft protection program. The purpose of the Guide is to help businesses determine whether they are subject to the Rule as a “financial institution” or “creditor” that maintains “covered accounts.” For businesses that are covered by the Rule, the Guide includes tips on establishing an identity theft prevention program that meets the Rule’s requirements.
The Guide covers amendments to the Rule made December 2012.when the FTC revised the Rule to adopt a narrower definition of “creditor.” The prior definition of creditor, was so broad that it included virtually all businesses that accept deferred payment for goods or services, was limited to entities that grant credit or defer payment for goods and in connection with a credit transaction; Furnish information to consumer reporting agencies in connection with a credit transaction; or Advance funds to or on behalf of a person, in certain cases.
The new Guide presents a series of questions that businesses should ask themselves; such as whether they regularly grant or arrange credit or whether they get or use consumer reports in connection with a credit transaction. The Guide includes a series of FAQs to help answer some anticipated questions on the scope of the Rule and compliance with its requirements.
For example, the FAQs help clarify that, for purposes of the Rule, “advancing funds” means making a loan or providing financing, but does not include deferring the payment of debt or the purchase of goods and services alone. The FAQs also explain that even a business that does not use credit reports directly—such as a company that contracts with a third party to pull consumers’ reports and evaluate their creditworthiness—is considered to be using credit reports regularly and in the ordinary course of business.
If a business is a financial institution or creditor, the next step is to determine whether the business’s accounts fall into one of two categories of “covered accounts”: (1) a consumer account that involves or allows multiple payments and transactions, and (2) any other account with a “reasonably foreseeable” risk of identity theft. The Guide includes tips on making this determination.
For businesses that are financial institutions or creditors that maintain covered accounts, the Guide has a four-step process for complying with the Rule. First, there must be a written identity theft prevention program with reasonable policies and procedures in place to identity suspicious patterns or practices indicating the possibility of identity theft. Second, procedures must be in place to detect these patterns and practices as red flags for identity theft. Third, spell out appropriate actions that need to be taken when a red flag is detected. The program must detail how it will be kept current to deal with new and emerging threats.
There flexibility in the Rule, as indicated by this new Guide. Although the Rule has requirements on how to incorporate an identity theft protection program into the daily operations of a business, it allows flexibility in designing a program suited to the needs of a particular business, understanding that some business might require more detail than others. (compliments of Hogan Lovells June 2013)
CFPB AMENDS EXAMINATION MANUAL USED TO CHECK MORTGAGE LENDERS AND MORTGAGE BROKERS FOR COMPLIANCE AGAIN AND INTENDS TO AMEND IT EVEN MORE BEFORE JAN. 10, 2014
FACTS
On June 4, the Consumer Financial Protection Bureau published an update to its examination procedures regarding new mortgage regulations issued under the Equal Credit Opportunity Act and the Truth in Lending Act. The updated manual will give mortgage companies an idea of the detail that the CFPB will be reviewing as to TILA and ECOA compliance. The examination includes a review of both written and actual policies and practices. New rules become effective January 2014.
The new procedures amend the CFPB’s Supervision and Examination Manual, issued in October 2012, and describe how the CFPB examines and supervises mortgage servicers and originators. The purpose is to determine whether mortgage companies have effective policies and procedures in place to ensure compliance with consumer financial protection laws.
These two new updates include new rules affecting compensation and qualifications for loan originators, appraisals, and escrow accounts.
CFPB will analyze whether a mortgage company has policies and procedures in place to ensure its loan originators are ethical, knowledgeable, and meet character, fitness, and financial responsibility requirements. Loan originators must pass criminal background checks and complete appropriate training.
CFPB will look at loan originator compensation policies. For the most part loan originator compensation cannot be contingent upon the terms of the mortgage loan. For example, the examination of compensation will look at whether a broker was paid more for loans that had higher interest rates, prepayment penalties, or higher fees. The new rules prohibit a loan originator from being paid by both the consumer and any other party subject to the transaction, such as the lender.
The CFPB will issue examination guidance regarding the ability to repay and mortgage servicing rules over the next few months. (thankyouweinerbfrodsy6/2013)
CFPB INSISTS ON GOING FORWARD WITH JANUARY EFFECTIVE DATE OF NEW RULES NOTWITHSTANDING THE AGENCY WILL BE MAKING MORE CHANGES BEFORE THEN
FACTS
On June 19, defending his agency’s regulatory process and track record, CFPB Director Richard Cordray said that the mortgage rules scheduled to take effect next January will not be delay despite a forthcoming “second round of proposed changes” and other “adjustments at the margins.”
One of the admittedly difficult parts of writing new rules is to anticipate the unexpected, Cordray said.
“Unforeseen consequences can loom large, and broader consultation through an open and accessible process helps us mitigate this concern,” Cordray said. “Finally, as to mistaken judgments, no foolproof system can be devised to prevent them, but again, an open and accessible process managed by our highly competent staff provides some assurance that we will hear and test conflicting viewpoints before reaching our conclusionsthereby subjecting our rules to the rigors of the proverbial marketplace of ideas.’”
“We pledge to work with the industry to resolve ambiguities, to discuss obstacles to implementation and to work through any serious, unintended consequences.” (MPA62113)
MORAL
Now here this. The rules will go into effect January 2013 even though we might change some of those rules before then. Isn’t that nice. We know the rules that are to go into effect January 2014 unless of course they change between now and then.
NORTHERN CALIFORNIA WOMAN SENTENCED TO THREE YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
Amy Nicole Schloemann, aka Amy Kinney was sentenced to 36 months in prison and ordered to pay $5,805,902 in restitution for her role in a real estate-related wire fraud conspiracy.
Schloemann pleaded guilty to conspiracy to commit wire fraud, in violation of 18 United States Code Section 1349. Schloemann was the president of Hiddenbrooke Mortgage Co., a real estate and mortgage brokerage company in operation from 2005 through 2007 in Vallejo, Calif. Between 2006 and July 2007, Schloemann conspired with others to purchase more than 18 properties in the Northern and Eastern Districts of California in the names of fictitious identities and using straw buyers. As part of the conspiracy, Schloemann supervised others who processed loan packages with materially false information, including contracts that reflected inflated sales prices above the original sales prices.
The purchase loans, which were 100% financed, exceeded the sales prices received by the sellers. The excess amounts from the loan proceeds, or “profits” from the transactions, were dispersed through escrow to entities controlled in part by Schloemann. All but a few of the properties involved in the conspiracy were foreclosed due to the failure to make mortgage payments. The lenders sustained significant losses as a result of the fraud. (usattyndca61413)
MORAL
I would like you to pay attention to the time line. It will emphasize what I have been telling most of you over the years. 1-Seven years ago she started the fraud per the above. 2-In August 2012 she pleaded guilty which is last year. 3-Investigations before indictments generally take two years and some are longer. 4-The indictment was handed down in 2009, two years after the offense. Thus 2006-2007 criminal acts take place. 20072009 federal investigators find out about the conduct and conduct the investigation (two years), 2009 she is indicted and three years later pleads guilty. Keep track of time lines because as a rule this seems to be the way federal prosecutors work with some exceptions.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
