Mortgage Lending, Servicing + Banking

On January 23, the Chairman of the National Credit Union Administration (NCUA) released a letter outlining its supervisory priorities for the new year. While the organization acknowledged that the credit union system had remained largely stable during 2023, it observed growing signs of financial strain on balance sheets. Specifically, the “rise in interest rate and liquidity risks resulted in an increase in the number of composite CAMELS code 3, 4, and 5 credit unions. Inflation and interest rates are affecting household budgets, which could lead to an increase in credit risk in future quarters.”

Recently the U.S. Supreme Court granted the petition for certiorari in Smith v. Spizzirri, which presents the question of whether § 3 of the Federal Arbitration Act (FAA) requires district courts to issue a stay pending arbitration or allows courts the discretion to dismiss the suit when all claims are subject to arbitration.

Late last month, Councilmember Kenyan R. McDuffie introduced B 25-0609, entitled the Protecting Affordable Loans Amendment Act of 2023, that proposes to opt the District of Columbia out of sections 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Sections 521-523 of DIDMCA empower state banks, insured state and federal savings associations, and state credit unions to charge the interest allowed by the state where they are located, regardless of where the borrower is located and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). But another section of DIDMCA (section 525), permits states to opt out of sections 521-523 via legislation. If the bill passes, the District will join Colorado, discussed here, Iowa and Puerto Rico as the only jurisdictions currently opting out.

On December 20, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice (DOJ) filed a complaint in a Texas federal court against Colony Ridge Development, LLC (Colony Ridge), its affiliates, and Loan Originator Services, a Texas mortgage company, for allegedly operating an illegal land sales scheme and targeting tens of thousands of Hispanic borrowers with false statements and predatory loans. Specifically, the complaint alleges Colony Ridge sells flood-prone land without water, sewer, or electrical infrastructure, and that the company sets borrowers up with loans they cannot afford. The complaint alleges that defendants engaged in unlawful discrimination by targeting Hispanics in violation of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). In addition, the complaint alleges violation of the Dodd-Frank Act’s prohibition on unfair, deceptive or abusive acts or practices (UDAAP), and a variety of violations of the Interstate Land Sales Full Disclosure Act.

A group of non-profit consumer advocacy organizations, the Conference of State Bank Supervisors, and the American Association of Residential Mortgage Regulators filed two separate briefs asking the U.S. Supreme Court to overturn a Second Circuit decision holding that New York’s escrow interest law is preempted by the National Bank Act (NBA) under the “ordinary legal principles of pre-emption.” Under the NBA, a state law is preempted if the law “prevents or significantly interferes with the exercise by the national bank of its powers.”

Last week, the annual Community Reinvestment Act & Fair Lending Colloquium took place in Austin, Texas. Two officials from the U.S. Department of Justice (DOJ) discussed in detail the “Combatting Redlining Initiative” led by the DOJ using a “whole of government” approach, the current state of redlining investigations, and the future direction of enforcement. In prepared remarks Assistant Attorney General Kristen Clarke stated, “we are proud of the work we have been able to accomplish in these past two years through the Combatting Redlining Initiative. But we are by no means done. We are also focusing on unlawful practices such as reverse redlining, and steering.”

On November 13, the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve Board (Fed) announced increased dollar thresholds used to determine whether certain consumer credit and lease transactions in 2024 are exempt from Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing).

As discussed here, on August 1, the two major national credit union trade associations — the National Association of Federal Credit Unions (NAFCU) and the Credit Union National Association (CUNA) — announced plans to merge and create a new organization called America’s Credit Unions. Today, CUNA announced that the organizations’ members voted overwhelmingly (94% of CUNA members and 86% of NAFCU members) in favor of the merger. America’s Credit Unions will be legally formed on January 1, 2024.

In the last three weeks, the U.S. Department of Justice (DOJ) reached two more settlements with lenders under its Combatting Redlining Initiative, which began in October 2021. On September 27, the DOJ announced that Washington Trust Company agreed to pay $9 million to resolve allegations that it engaged in redlining majority-Black and Hispanic neighborhoods in Rhode Island. On October 19, the DOJ announced a separate $9 million agreement with Ameris Bank to resolve allegations that it engaged in redlining predominately Black and Hispanic neighborhoods in Jacksonville, Florida. And, according to Attorney General Merrick Garland, this is just the beginning. “[T]he Justice Department currently has over two dozen active investigations into redlining, spanning neighborhoods across the country.”

On October 17, the Clearing House Association, LLC (Association) and National Automated Clearing House Association (Nacha) joined forces to submit an amicus brief in support of a credit union held liable by a district court for a fraud perpetrated by an outside party on the sender of a wire. According to the amici, the district court wrongly held the credit union which banked the beneficiary of the wire responsible for the sender’s losses, even though it had no relationship with the sender. The case, Studco Building Systems US, LLC v. 1st Advantage Federal Credit Union, on appeal before the Fourth Circuit, challenges the district court ruling. The case deals with the liability scheme found in Article 4A of the Uniform Commercial Code (UCC). According to the amici, under the UCC the disappointed originator (the plaintiff) has recourse against the person paid (its own bank), but not against the bank that paid the beneficiary of the wire, with whom the sender has no relationship. The amici argue that “[t]he district court’s opinion muddles these rules, uncaps banks’ liability, and threatens the efficiency of all U.S. funds-transfer systems — not just the ACH networks — to the detriment of every economic participant, down to the consumer.”