In this issue:
• CFPB ACTION AGAINST DEBT SETTLEMENT FIRM ATTACKS “LEGAL MODEL”
• SEC ADOPTS PAY RATIO DISCLOSURE RULES
• COMMISSIONER REMINDS INDUSTRY ABOUT HOUSING COUNSELING NOTICE
• TRID IS EFFECTIVE: ARE THERE ANY MARYLAND LAW CONCERNS?
On August 17, 2015, the Consumer Financial Protection Bureau (CFPB) filed a complaint seeking a permanent injunction and other relief against various related entities that operate a debt relief business. The complaint attacks the “legal model” that certain debt relief providers shifted to after the Federal Trade Commission’s Telemarketing Sales Rule (TSR) was amended in 2010 to prohibit the collection of up-front debt relief service fees. The complaint alleges that this debt relief provider established its business operations in order to provide legal services that were not subject to the TSR’s advance fee ban. The complaint indicates that the defendants charged consumers an initial fee of $199, legal services fees that were 10-15% of enrolled debts, and an $84.95 attorney monthly service fee – all before any debts were settled and any payments were made to creditors. The complaint alleges that no legal services were performed for consumers, debts were most often not resolved, and the fees that this debt relief provider collected were not legal fees, but were illegal advance fees under the TSR. According to the complaint, the defendants collected more than $67 million in up-front fees from more than 21,000 consumers nationwide. The complaint alleges violations of the TSR and misrepresentations amounting to unfair, deceptive, or abusive acts or practices. The CFPB obtained a preliminary injunction in connection with the complaint on September 2, 2015 – prohibiting the defendants from continuing operations, freezing assets, and appointing a receiver. Debt relief providers should examine their fee practices and services performed to ensure compliance with the TSR. For more information concerning this topic or debt relief services in general, please contact Christopher Rahl.
The SEC recently adopted rules pursuant to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires a public company to disclose the “pay ratio” between its CEO’s annual total compensation and the median annual total compensation of all other employees of the company. The disclosure requirements do not apply to smaller reporting companies, foreign private issuers, multijurisdictional filers, emerging growth companies, or registered investment companies. The final rules require disclosure of the pay ratio in registration statements, proxy and information statements, and annual reports that call for executive compensation disclosure, and will be effective for a company’s first fiscal year beginning on or after January 1, 2017. A company will be allowed to select a date within the last three months of its last completed fiscal year on which to determine the employee population for purposes of identifying the median employee, and the median employee may be identified once every three years unless there has been a change in the company’s employee population or employee compensation arrangements. If the median employee's compensation changes within those three years, then the company may use another employee with substantially similar compensation as its median employee. Although independent contractors will not need to be counted, a company will generally be required to count employees located outside of the U.S. Please contact Andy Bulgin for more information on this topic.
On September 28, 2015, the Maryland Commissioner of Financial Regulation published an Advisory reminding mortgage lenders that there may be a simple solution for complying with both RESPA’s requirement to provide a housing counseling notice, implemented by the CFPB’s rule found at 12 CFR § 1024.20, and Maryland’s similar notice requirement, found in Md. Code Ann., Com. Law § 12-1303. This solution, described in our March 2014 Maryland Legal Alert, allows lenders to add one sentence to the federal disclosure and comply with both federal and Maryland law using one document. We appreciate the efforts of our Maryland regulators at DHCD and DLLR toward simplifying the residential mortgage disclosure process, an effort that benefits industry and consumers alike. Please contact Margie Corwin if you would like to discuss this or any other mortgage loan disclosure issues.
The CFPB’s Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosures are now effective. TRID disclosures will continue to engage our attention for some time to come. As the dust settles, please review your unique Maryland residential mortgage loan disclosures to ensure they are consistent with your TRID disclosures. For example, if fees changed in order to more easily meet TRID requirements, be sure Maryland disclosures (e.g., broker agreements, financing agreements and commitments, attorney selection disclosure, etc.) reflect the new fee structure. Similarly, references to RESPA’s Good Faith Estimate should be changed to reflect TRID (or TILA) terminology or, better yet, to be more generic – in case the loan transaction requires use of the “old” forms. As a general rule, until the Maryland Commissioner of Financial Regulation issues new regulations (which may be on the horizon), no Maryland law disclosure requirements have changed. Please contact Margie Corwin if you would like to discuss or commiserate about TRID and Maryland mortgage loan disclosures.