Consumer Compliance Outlook: Third Quarter 2010

News from Washington: Regulatory Updates

The Board of Governors of the Federal Reserve System (Board) announces interim final rule to implement recent amendment to the CARD Act delaying effective date for certain gift cards. On August 11, 2010, the Board announced an interim final rule under Regulation E to implement a recent amendment to the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) that delays the effective date for certain disclosure requirements for gift cards. Under the interim rule, certain disclosure and other requirements for gift certificates, store gift cards, and general-use prepaid cards issued before April 1, 2010 are delayed until January 31, 2011. However, to take advantage of the delayed effective date for cards issued before April 1, 2010, the issuer must: (1) comply with the CARD Act’s substantive restrictions on gift card fees; (2) not impose an expiration date for funds underlying the gift card or certificate; (3) issue a replacement card to the consumer on request at no additional charge; and (4) make alternative disclosures available to the consumer through in-store signage, messages during customer service calls, websites, and general advertising. The purpose of the amendment is to permit the sale of existing, noncompliant gift card stock through January 31, 2011. Comments on the interim final rule were due by September 16, 2010. The Board’s announcement and Federal Register notice are available at

Board adjusts fee-based trigger for high-cost loans to $592. On July 30, 2010, the Board announced its annual adjustment to the dollar amount of fees that trigger additional disclosure requirements and restrictions under Regulation Z and the Home Ownership and Equity Protection Act for certain “high-cost” home mortgage loans. The dollar amount of the fee-based trigger has been adjusted to $592, effective January 1, 2011. The Board’s announcement is available at

The U.S. Department of Housing and Urban Development (HUD) releases 2009 annual report on state of fair housing in America. On July 23, 2010, HUD announced the publication of its 2009 annual report on the state of fair housing in America. HUD is required to produce this report for Congress under the Fair Housing Act and the Housing and Community Development Act of 1987. The highlights of the report regarding enforcement activities include:

The report is available on HUD’s website at

Federal agencies issue final rules to implement S.A.F.E. Act requirements for registration of mortgage loan originators. On July 28, 2010, the Board, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision, the Farm Credit Administration, and the National Credit Union Administration (agencies) issued a final rule requiring residential mortgage loan originators who are employees of national and state banks, savings associations, Farm Credit System institutions, credit unions, and certain of their subsidiaries to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act). Under the S.A.F.E. Act, residential mortgage loan originators must register with the Nationwide Mortgage Licensing System and Registry created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. The final rules take effect on October 1, 2010. The agencies anticipate that the registry could begin accepting registrations as early as January 28, 2011. Employees of agency-regulated institutions must not register until the agencies instruct them to do so. The agencies will provide an advance announcement of the date the registry will begin accepting federal registrations, and agency-regulated institutions and their applicable employees will have 180 days from that date to comply with the initial registration requirements. The Board’s announcement is available at

HUD publishes interpretive rule regarding home warranty companies. On June 25, 2010, HUD published an interpretive rule clarifying circumstances under which home warranty companies (HWC) may compensate real estate brokers and agents in compliance with §8 of the Real Estate Settlement Procedures Act (RESPA). Home warranties fall under RESPA’s definition of “settlement services” and are therefore subject to RESPA’s ban on kickbacks and referral fees if the home warranty service is part of a federally related mortgage loan transaction. The interpretive rule clarifies that marketing of an HWC by a real estate broker or agent to sell a home warranty to particular homebuyers or sellers constitutes a referral to a settlement service provider and is not compensable. The interpretive rule also applies a RESPA analysis to determine whether services performed by a broker or agent in connection with an HWC are compensable: An HWC can compensate a broker or agent for any nonnominal, necessary services actually performed, provided the compensation is reasonably related to the services. HUD provides some examples of compensable services to clarify the rule. The Federal Register notice for the interpretive rule is available at

Banking agencies publish host state loan-to-deposit ratios. On June 24, 2010, the Board, the FDIC, and the OCC made public the updated host state loan-to-deposit ratios that the agencies use for verifying compliance with §109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 during a bank’s Community Reinvestment Act examination. Section 109 prohibits a bank from establishing or acquiring a branch outside its home state when the primary purpose is to acquire deposits. A bank complies with §109 if the loan-to-deposit ratio in its home state is at least one-half the loan-to-deposit ratio of the host state where it plans to establish or acquire a branch. If the home state ratio is less than one-half the host state ratio, a second test is conducted to determine whether the bank is reasonably meeting the credit needs of the communities of the interstate branches. If the bank fails the second test, it violates §109 and can be sanctioned by its regulator. The agencies’ announcement is available at

HUD is investigating mortgage lenders for discrimination against expectant mothers and new parents. On July 21, 2010, HUD announced that it is investigating certain mortgage lenders who may be denying mortgage loans to expectant mothers. HUD enforces the Fair Housing Act, 42 U.S.C. §3601 et seq, which prohibits discrimination in housing based on sex, familial status (pregnancy or children in the family), or disability. HUD began the investigation in response to a report in the New York Times that some lenders were tightening their lending standards as a result of new quality control procedures instituted by Freddie Mac and Fannie Mae, and that pregnant mothers may be denied loans under the new procedures because their income is reduced or eliminated during pregnancy and maternity leave. (Tara Siegel Bernard, “Need a Mortgage? Don’t Get Pregnant,” New York Times, July 19, 2010.) For example, Fannie Mae requires lenders to verify a borrower’s finances a second time right before closing. Some lenders determine during the second verification that a borrower is on short-term disability because of maternity leave and deny the loan because Fannie Mae and Freddie Mac require that a borrower’s income support the loan for at least three years. HUD’s announcement is available at