Author Archives: Karlie Willbern

PHH v. CFPB: Who won?

You gotta love a case where each party can claim victory!

The US Court of Appeals for the DC Circuit found that the CFPB’s structure was constitutionally valid even though the President could only fire the director for cause rather than “at will.”  So, consumer advocates can be pleased that the agency is continuing in existence, and the director is theoretically independent.  However, they are now stuck with a Trump appointee (when he gets around to it) that will carry over into the next presidential term.  Meanwhile, Mulvaney (interim director) is busy dismantling rules and procedures.  Even the tagline for the CFPB press releases has been changed to add the fact that the CFPB helps “markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations….”

PHH has to be pleased that the appellate court upheld part of the prior decision, which concluded that CFPB director Cordray’s decision-making violated due process.  The case involved a potential violation of the anti-kickback provisions of RESPA.  Cordray retroactively repealed HUD rulings—without going through the Administrative Procedures Act.  Plus, he basically nixed the idea of a statute of limitations for the alleged violation.  The original opinion on this point is a great primer on US Supreme Court decisions on overreach and violation of due process by agencies.  So, industry wins big on this issue.

Now, it will be intriguing to see whether this latter issue (violation of due process) can translate into an effective defense in other cases where regulators “write” rules through the examination and enforcement process!


Karen Neeley
Kennedy Sutherland LLP


Hurricane Harvey - Disaster FAQs


The banking regulators urge bankers to be flexible and provide reasonable accommodations to their borrowers who are adversely affected by natural disasters.  The following are some questions that arise from this.

  1. Many consumers have their income temporarily disrupted by storms. We would like to defer payments.  Any legal or regulatory issues?
  2. From a Reg Z perspective, a payment deferral should be a modification at most. It would not trigger new disclosures.  It is explicitly not a refinancing.  See sec. 1026.20(a)(4).  From a Texas Credit Code perspective, you would not be able to charge a deferral fee on a loan under chapter 342 (installment loan with rate over10%).  Of course, you probably wouldn’t want to do so anyway!

Send the customer a letter or use the bank’s website with the customer logged in to advise them of the deferral and when the payments should re-start.

  1. So, can we explicitly defer payments on home equity loans?
  2. Risky. The Texas Constitution requires home equity loans to be scheduled to be repaid in “substantially equal successive periodic installments.”  I can argue that so long as the original schedule met that criteria, it is valid.  Certainly, the bank can modify a home equity loan.  The safest way to do that is to make accommodations (e.g. lower rate and decrease payments) and extend the term.  So long as the payment covers accrued interest and “some amount of principal,” the loan should be valid.
  3. We expect customers to need home improvement loans quickly in order to start repairs. Can we waive any of the regulatory requirements?
  4. Yes, if you and the customer jump through the right hoops! The Texas Constitution requires both a waiting period of 5 days between application and closing and then a 3 day right of rescission.  Those can be waived, however, if the owner acknowledges in writing that the work and material are necessary to complete immediate repairs to conditions on the homestead that materially affect the health or safety of the owner or person residing in the homestead.

The Reg Z three day right of rescission can be waived for a bona fide personal financial emergency.  The consumer must give the creditor a dated written statement that describes the emergency, specifically waives the ROR, and is signed by all of the consumer entitled to rescind.


  1. Some consumers may wish to apply for a home equity loan so that they can not only fix the damages but also pull out a little cash. Any issues with that?
  2. Sadly, yes. First, remember that the 80% loan to value ratio is measured at closing.  If the homestead has been damaged, its current fair market value may not support a home equity loan.

Second, the Texas Constitution requires a twelve day cooling off period from application/receipt of notice concerning extensions of credit and a three day rescission period.  These CANNOT BE WAIVED!

  1. We would like to offer special, low-rate unsecured loans to affected consumers. Any minefields with that?
  2. Maybe. If your bank should be examined for fair lending pricing issues, this group of loans could skew the results.  But since employee loans are typically excluded from the analysis (due to special rates), this portfolio should similarly be excluded.

Be sure that all of your customers know about the program…not just protected class members.  If you market it, be sure to reach out to your Hispanic customers through Spanish-language radio, for example.

  1. Our customers will be filing claims on their insurance policies as to property damage. Any special problems there?
  2. Yes. The Texas Insurance Code (chapter 557) includes some rules that apply to lenders.  If a claim under a policy for damages to residential real property is paid to the insured and the bank and the bank holds all or part of the proceeds, the bank must notify the insured of its requirements for release of the proceeds.  This notice must be provided not later than the 10th day after the bank receives the insurance payment.

Similarly, if an insurance proceeds check for damages to personal property is made payable to the bank or otherwise requires the bank’s approval, then no later than the 14th business day after the bank receives a request for endorsement or approval it must either endorse/approve or provide a written statement of the reason for the denial.

  1. Many customers with debit/ATM cards did not opt-in to overdraft coverage when we sent the Reg E notice. Can we pay these if they overdraw?
  2. Certainly you MUST pay if the items are force-pays under the card rules. But you could pay these so long as you do not charge a fee of any sort for doing so.  Reg E, sec. 1005.17, prohibits a bank from assessing a fee or charge for an overdraft unless its requirements (notice and opt-in) have been satisfied.
  3. Are there any accounting consequences for waiving these (and other) fees?
  4. No. You just have foregone revenue.