The Consumer Financial Protection Bureau (CFBP) on January 31, 2017 issued consent orders settling enforcement claims that a major mortgage lender violated the Real Estate Settlement Procedures Act (RESPA) in connection with its marketing, desk rental, lead purchase and other agreements with hundreds of real estate brokers and other settlement service providers (the “Consent Orders”). The CFPB alleged that the agreements were actually mechanisms for the mortgage lender to pay for the referral of business in violation of RESPA Section 8(a). The lender will pay a $3.5 million civil money penalty to settle the action. The CFPB also resolved claims against two of the real estate brokers and a mortgage servicer for allegedly accepting payments under such agreements; those three respondents together will pay $495,000 in consumer redress, disgorgement, and penalties. Moreover, as described in Point 8 below, the recordkeeping and cooperation provisions of the various consent orders suggest that the CFPB has preserved its ability to pursue other real estate brokers (and individual sales agents) who may have been involved in similar conduct.
The Consumer Financial Protection Bureau (Bureau) Friday filed a petition in the closely-watched PHH case, seeking to undo a ruling by a panel of judges for the D.C. Circuit Court that was highly critical of the Bureau’s interpretation of the Real Estate Settlement Procedures Act (RESPA). The Bureau also seeks to challenge a ruling in the case that the Bureau’s unusual structure is unconstitutional.
The legal challenge by PHH Corp. (PHH) to a June 4, 2015, decision by the director of the Consumer Financial Protection Bureau (Bureau) in connection with the Bureau’s enforcement proceeding against PHH has captivated the real estate settlement services industry. The attention is justified. Director Cordray’s ruling against PHH, which was the first appeal from a Bureau administrative trial, was shocking. The director had increased PHH’s disgorgement penalty 17-fold (from a $6.4 million penalty initially awarded to a massive $109 million), and in doing so trampled established rules and precedents for interpreting Section 8 of the Real Estate Settlement Procedures Act (RESPA). The director also declared that the Bureau is not subject to any statute of limitations if it decides to prosecute claims in its own administrative forum.
On June 23rd, the IRS dropped a bombshell on the lending industry. As of Midnight on July 1, 2016, many lenders will no longer be able to verify directly borrower income except through snail mail. If the IRS sticks to its plan, domestic lending is about to slow to a snail’s pace. Based on a June 24 call with the IRS, the agency may not have fully appreciated the unintended consequences of its mandate.
In a June 23 press release, the IRS announced changes to the procedures and requirements for all participants in the IRS’ Income Verification Express Service (IVES). These participants use the program to confirm the income of a borrower during the processing of a loan application (commonly referred to as a 4506-T request). IVES participants are now required to conduct employee and client re-verifications and to certify their compliance with these new dictates by July 1, 2016. The IRS will not deliver borrower income transcripts after Midnight on July 1, 2016 unless the certification is received.
In a June 24 call with the industry, the IRS confirmed this new policy applies to all lenders. The direct users of the IVES program must “re-verify,” the identities of all individuals submitting and retrieving IRS transcripts on its behalf. This reverification process requires the collection of the following:
- Date of birth
- Social security number
- Email address
- Phone number
Once re-verification is complete the lender must send a certification to the IRS that it has met the re-verification obligations to be able to continue to participate in the program.
There are other requirements regarding access management, transcript delivery, document retention, reporting of suspicious activity and security controls.
Resellers must take even more steps. Resellers of borrower income transcripts must obtain from each client the following information:
- Name of the company President, CEO or other Officer acting on behalf of the client (this most likely will be the client’s relationship manager).
- Last four digits of the client’s social security number of the company President, CEO or other Officer acting on behalf of the client.
- The employee identification number of the client
- The company name
- The businesses primary physical address.
The resellers must also maintain a list of all authorized users submitting and receiving IRS transcripts on behalf of the client. Resellers also must verify the legitimacy of all current and future clients through known trusted public sources. The IRS gives as an example, locating a phone number and address for the client on a public telephone listing and then contacting the number or address to verify that the party at the number is legitimately their client.
While the goal of security for personal tax information is admirable, the fire drill seems unnecessary. IVES participants are encouraged to contact their legislators to advise them of the IRS’s actions and to seek delay so that the IRS’s objectives can be met in a thoughtful way.
From fair housing laws to licensing requirements, the real estate industry is accustomed to navigating various legal constraints and requirements. However, as a result of current ambiguity in the law, class action lawsuits based upon website accessibility pose an emerging threat to real estate brokers, lenders, homebuilders, and ultimately, any company that has a web presence. Today almost all companies have a website, which is often used as the primary method to provide information and to market to current and future clients. But what about clients and prospects that have disabilities? Do they have equal access to your company website?
If your company has not addressed this issue, it not only may be missing potential clients, but it also may be a target for plaintiffs’ attorneys who are eager to capitalize on the current unsettled state of the law by bringing a class action lawsuit.