Rogers Towers, P.A. welcomes you to its Florida Banking Law Blog! A product of the firm’s Banking and Financial Services Practice Group, the blog will serve as a convenient way for us to share our expertise in banking-related legal issues. We represent banks and other providers of financial services in a broad range of matters throughout the state of Florida. As a result of our significant experience, we will have much to share in the upcoming blog posts and we hope that you will find these posts to be informative and beneficial to you in your respective positions in the industry. We appreciate your interest in the field and in Rogers Towers, P.A., and we look forward to your comments in response to our blog.
On July 24, 2015, a federal court cleared the way for a small Texas bank to challenge the constitutionally of the Consumer Financial Protection Bureau (“CFPB”). In State National Bank of Big Spring, et al. v. Lew, et al., the U.S. Court of Appeals for the District of Columbia held that the bank falls under the regulatory authority of the CFPB and may contest regulations issued by the CFPB.
Previously, the United States District Court for the District of Columbia had found that the bank lacked standing and dismissed the suit. By reversing this decision, the appellate court ensures that the case will move forward. The bank alleges that the CFPB is an independent agency which must be headed by several members, not an individual director. The bank also suggests that the President’s recess appointment of Richard Cordray, the CFPB’s Director, was illegal and that actions taken by Mr. Cordray before Senate confirmation were unlawful.
Congress created the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) in the wake of the financial crisis. The CFPB’s stated mission is to protect consumers by regulating consumer finance markets.
If successful, this lawsuit may alter the structure of the CFPB and its regulatory authority. This blog will continue to monitor the pending litigation and discuss its implications for community banks and other financial institutions.
It’s official – TRID will take effect on October 3, 2015. As we have previously discussed, ever since the Dodd-Frank Act mandated new, regime-changing, mortgage disclosures, the banking industry has been diligently preparing for the day that the Consumer Financial Protection Bureau (CFPB) implements a Truth-in-Lending Act (TILA)/Real Estate Settlement Procedures Act (RESPA) Integrated Mortgage Disclosures Rule – and now we know that that day will be October 3, 2015.
TRID was originally slated to go into effect on August 1, 2015 but, on June 17, 2015, CFPB Director Richard Cordray issued a statement proposing a delay of TRID’s effective date until October 1, 2015. Then, on June 24, 2015, the CFPB followed up on the Director’s statement by issuing a proposed rule that would extend TRID’s effective date until October 3, 2015 (the additional 2 day delay allowed for a Saturday implementation, a schedule preferred by industry stakeholders).
During the public comment period on the proposed postponement, the CFPB received over 1300 comments, with the vast majority of the commenters supporting an extension of the effective date. Finally, on July 21, 2015, the CFPB provided the banking industry with much needed certainty by “adopting an October 3, 2015 effective date for the TILA-RESPA Final Rule and Amendments.” In addition to establishing the October 3, 2015 effective date for TRID, the CFPB’s final rule also included technical corrections to TRID that will also become effective on October 3, 2015.
Within their comments on the proposed extension, many industry stakeholders, including large banks, requested that – following implementation – the CFPB institute a three or six-month formal grace period during which the CFPB would forgo TRID enforcement. The CFPB acknowledged the grace period requests but, ultimately, decided not to adopt a “formal” grace period. However, within the final rule, the CFPB reiterated, and quoted from, the CFPB Director’s June 3, 2015 letter to Congress which stated that the CFPB’s “oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into the compliance with the Rule on time” – a position that many in the banking industry consider suggestive of an “informal” grace period, as long as an entity makes good-faith efforts to comply with TRID.
A copy of the final rule is available at the following link.
Parties claiming a violation of the Fair Housing Act (“FHA”), 42 U.S.C. § 3601 et seq., need not prove intentional discrimination to prevail, according to a recent ruling handed down by the United States Supreme Court. So long as a claimant can show that a practice or policy results in a disproportionately negative effect on housing opportunities when measured on the basis of race, color, religion, sex, handicap, familial status or national origin, the claimant may obtain relief under the FHA, even where there is no allegation or indication of intentional discrimination.
Fair Housing Act
The FHA makes it unlawful to refuse to sell or rent a dwelling to any person, or to refuse to engage in a residential real estate transaction with any individual, because of the protected characteristics listed above. The FHA’s language expressly prohibits intentional discrimination by any person or entity, including lenders, engaged in residential real estate transactions. Less clear, until the Supreme Court weighed in, was whether the FHA prohibited real estate policies and practices that produced unintended discriminatory results. Known as the “disparate impact” theory of discrimination, the focus under this inquiry is not why an entity took a certain action, but rather what result occurred because of that action. The Court’s decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project definitively resolves the debate in favor of recognizing disparate impact claims in FHA-based challenges. In such cases, the burden of proof is shifted to the defendant to prove that the challenged practice is necessary to achieve a substantial, legitimate nondiscriminatory interest.
Inclusive Communities and the Path Forward
In Inclusive Communities, the Inclusive Communities Project, Inc. (“ICP”), a Texas-based nonprofit that helps low-income families obtain affordable housing, alleged that the Texas Department of Housing and Community Affairs (the “Department”) caused segregated housing patterns because of the way the Department allocated low-income housing tax credits. Invoking the disparate impact theory of discrimination, ICP claimed that that the Department’s allocation criteria granted too many housing credits in predominantly black inner-city areas and not enough in predominantly white suburban areas, perpetuating segregated housing patterns. ICP did not allege that the Department intended to establish segregated housing; ICP argued only that the Department’s policies produced the discriminatory result.
Turning to the FHA’s own words and prior judicial interpretations of similar statutes, the Court held that the FHA recognizes disparate impact claims. Acknowledging that its decision could cause real estate developers to hesitate when considering whether to invest in housing projects for fear of litigation, the Court emphasized that developers must be allowed to consider market factors in determining where to construct certain housing projects. The Court stated that the FHA would undermine its own purpose if permitting disparate impact claims caused private investors to scale back development operations. Despite the Court’s assurances, some members of the banking community criticized the decision, with the president of the American Bankers Association warning that financial institutions may find that the threat of litigation outweighs the benefit of lending money to low-income housing developers. Whether or not this fear produces any substantive changes in lending habits will largely hinge on how the lower courts apply the Supreme Court’s decision.