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Financial Services Law Blog Legal updates, news, and commentary from the attorneys of Baker Sterchi Cowden & Rice LLC

Community Banks Press On in Fight for Regulation Reform

April 5, 2017 | Megan Stumph

One of the more compelling, but sometimes unheeded, arguments against heavy banking regulations is the plight of the community bank. The expense and practicality of adhering to stringent reporting requirements, fee limits, and timelines place a heavier burden on small, local banks, particularly those in rural areas, than on large financial institutions. Accordingly, organizations for community banks and local credit unions have been created in order to give a voice to those smaller entities that are often overlooked in the course of financial regulation.

At a recent convention attended by nearly 3,000 community bankers, Camden R. Fine, the President and CEO of Independent Community Bankers of America (“ICBA”) called community banks to action in order to drive continued regulation reform for local banking communities.  The ICBA intends, at an upcoming summit in Washington D.C., to address Congress in order to ensure that proposed regulatory relief legislation for community banks is signed into law.

In its “Plan for Prosperity” outlining the relief the ICBA will seek at the Summit, the ICBA proposes that the CFPB should be granted increased authority to exempt or tier regulatory requirements for community banks and to restructure the CFPB to create a diverse panel rather than a single decision-maker, which the ICBA hopes would increase the likelihood that at least one decision maker has a background in community bank lending practices. 

The ICBA also seeks to eliminate the filing of capricious “disparate impact” fair lending lawsuits by requiring the petitioner to demonstrate discriminatory intent in order to succeed on a claim under the Equal Credit Opportunity Act and the Fair Housing Act.  This change would ensure that lenders, particularly small, local lenders with limited pools of applicants, who apply uniform and neutral lending standards, are not subjected to frivolous or unfounded claims under those Acts.

Additional reforms proposed by the ICBA would impose a cost-benefit analysis for new regulations, raise the currency transaction report threshold under the Bank Secrecy Act, eliminate the small business data collection requirements under Dodd-Frank, and would reform the reporting requirements and closing processes for community banks and other small servicers.

By reforming and lessening regulation for smaller financial institutions, it is hoped that local lenders will thrive and compete with those servicers deemed “Too Big to Fail.”

CFPB Sets its Sights on Student Loan Servicing

February 28, 2017 | Megan Stumph

“Make hay while the sun is shining.”  The Consumer Financial Protection Bureau (the “CFPB”) is making its proverbial hay, after facing political attacks and constitutional challenges to its very structure, by bringing suit against Navient and two of its subsidiaries for an array of alleged failures in servicing of student loans.

In the Complaint, the CFPB states that Navient has failed to correctly allocate payments received to the customer’s account, particularly where that customer has multiple loans.  The Bureau further alleges that representatives of Navient, rather than offering the student income-based repayment plan, often directed their customers to enter into forbearance periods, during which the interest capitalized, causing an increase in the principal balance of those loans.   For those who did receive income-based payment plans, it is alleged that Navient failed to send appropriate notices detailing requirements and requests for information for borrowers to maintain the income-based payment plan, causing the monthly payment to increase by hundreds, if not thousands of dollars, and potentially disqualifying those borrowers from student loan forgiveness eligibility. 

Navient is also alleged to have misreported the discharge of U.S. Armed Forces Service members’ loans by reporting that the military borrowers had been in default at the time of discharge when they had not been in default.

According to the Bureau, these, and other errors in servicing, put borrowers at a severe disadvantage in repaying their loans and maintaining good credit.  “For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” advised CFPB Director Richard Cordray.  Director Cordray further stated that, over the course of servicing its loans, Navient “chose to shortcut and deeive consumers to save on operating costs.  Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”

This action has the potential to give a lasting impact on student loan servicing, as Navient is the nation’s largest student loan servicer, currently servicing more than $300 billion in both federal and private student loans.  In a study conducted in 2016 by the CFPB, it was found that more than 8 million student loan borrowers are in default on at least one of their loans.  Student loan servicers are reminded that the 2012 Mortgage Servicing Settlement, involving similar allegations with respect to errors in servicing against the 5 largest home loan servicers, paved the way for CFPB regulations that now impact nearly all home loan servicers.

BSCR will continue to monitor this action and will provide important updates as the case progresses.

Favorable Ruling for Loan Servicers regarding Statute of Limitations

January 16, 2017 | Megan Stumph
In November of 2016, the Supreme Court of Florida upheld the appellate court’s decision that, essentially, the borrower’s loan had been decelerated by virtue of the trial court’s dismissal of the action pursuant to the first loan default, even though that dismissal was involuntary.
 
The trial court had quieted title in favor of the borrower based upon the state’s five (5) year statute of limitations, where the servicer’s prior case had been dismissed due to a failure of counsel to appear at a court-required hearing, and the servicer brought a second action to pursue foreclosure. On appeal, the Court reversed the trial court’s decision, reasoning that since potential future missed payments were not issues before the court in the first case, the two suits were not the same cause of action, and thus, the statute of limitations period re-started upon dismissal of the first case.  
 
The Florida Supreme Court, upon review, was asked to consider whether or not acceleration of payments due under a residential note and mortgage containing a reinstatement provision, in a foreclosure action that was dismissed involuntarily, trigger application of the statute of limitations to prevent a subsequent foreclosure action. 
 
Upholding the appellate decision, the Supreme Court of Florida held in the negative; that the statute of limitations does not continue to run for enforcement of the terms of the note and mortgage when a foreclosure action is dismissed.  The Court further maintained that there is no material distinction, whether or not the dismissal is considered “with” or “without” prejudice, for purposes of evaluating the statute of limitations.  
 
Thus, if a prior foreclosure action is unsuccessful for some reason, the lender will maintain its right to accelerate and foreclose on the home mortgage for subsequent defaults, and to accelerate the entire sums due and owing under the note.
 
The entire opinion may be found here.
 
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About Financial Services Law Blog

The BSCR Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry.  This blog will inform readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph,  and our Financial Services practice.

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