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Mortgage Lending: 14.12.3.2 Truth in Lending Act Claims

A number of courts have held that Truth in Lending Act (TILA) rescission claims are not barred by D’Oench and its related doctrines.676 A TILA claim is a statutory claim, not an attempt to enforce an agreement, so neither D’Oench nor section 1823(e) should be applicable. Further, in many cases the TILA violation will be apparent on the face of the loan documents, so the rationale behind these doctrines will be inapplicable.

Mortgage Lending: 14.12.3.3 Breach of Contract

There is wide recognition that D’Oench and section 1823(e) do not bar a claim that the bank breached an obligation imposed on it by the same agreement that it is attempting to enforce.682 Therefore, these doctrines should have no effect on a claim that the bank imposed charges not authorized by the loan agreement, or violated the agreement in other ways.

Mortgage Lending: 14.12.4 Other Statutory Claims

Several decisions hold that claims for violations of the Equal Credit Opportunity Act, such as requiring a spouse’s signature on a loan application, are not barred by D’Oench or its related doctrines because they are based on the lender’s illegal policies, not on agreements.684 Other statutory claims may fall within the free-standing tort exception that most courts recognize.685

Mortgage Lending: 14.13 FDIC and RTC Liability for Their Own Conduct

As a general rule, D’Oench and its related doctrines will not protect the FDIC or RTC from claims or defenses arising out of their own conduct.686 However a separate question is whether the Federal Tort Claims Act (FTCA)687 affords a remedy for “negligent operation of the receivership” by the FDIC or RTC.688 The FTCA is the exclusive remedy for tort claims against a federal agency.689

Mortgage Lending: 4.11.1 National Banks and Federal Savings Associations

Federal law controls the amount of interest that national banks and federal savings associations can charge. In general, they can abide by a federal ceiling or export their home state’s ceiling. Because the federal banking regulatory agencies define “interest” broadly for rate exportation purposes, rate exportation allows these lending institutions to export their home state’s law regarding a wide variety of charges.

Mortgage Lending: 6.2.3 No Field Preemption

A necessary corollary of the Barnett Bank standard is that federal banking law does not occupy the field of regulating national banks’ and federal savings associations’ lending. If federal law occupied the field, it would not be necessary to determine whether a state law “prevent[ed] or significantly interfere[d] with a bank’s exercise of its powers: all state laws would be preempted without the need to evaluate their impact on the bank.

Mortgage Lending: 6.4.1 Adoption of the 2011 OCC Rules; Differences from the 2004 Rules

On July 21, 2011, the OCC published amendments to its 2004 preemption rules,271 purporting to conform them to the Dodd-Frank Act’s requirements. The amendments delete the provision that extended preemption to national bank operating subsidiaries.272 They also delete the incidental powers or catchall rule that purported to preempt state laws on topics not covered by the other preemption rules.273

Unfair and Deceptive Acts and Practices: 2.5.1 General Principles of Federal Preemption

Sometimes a defendant will argue that a UDAP claim is preempted by federal law. There are three types of preemption. First, express preemption occurs when a federal law explicitly preempts state law. The other two types, conflict and field preemption, are implicit in the statute’s structure or purpose. Conflict preemption will be found where the state law actually conflicts with the federal law.

Unfair and Deceptive Acts and Practices: 2.5.3.2.3 The extent to which state UDAP statutes are preempted

The OCC regulations do not address state UDAP statutes, neither listing them among the laws that are preempted nor among the laws of general application that are not.2434 The savings clause does, however, include contract and tort law, and courts often treat UDAP claims as contract or tort claims.2435 In addition, state UDAP laws closely parallel the FTC Act, the Consumer Financial Protection Act, and OCC regulations2436 that prohibit banks f

Mortgage Lending: 5.4.6 Preemption

Federal preemption has long shaped the enactment and enforcement of state predatory lending laws. Prior to the Dodd-Frank Act,157 federal regulators and courts had ruled that state restrictions on high-cost loans were preempted in their application to loans made by national banks and federal savings associations and their operating subsidiaries.158 In some states, parity laws extended this preemption to state-chartered banks and savings associations.

Unfair and Deceptive Acts and Practices: 6.3.2 UDAP and Other Laws Prohibiting Credit That Consumer Cannot Repay

In a little more than a third of the statute, a UDAP statute prohibits unconscionability.54 A number of these statutes specify that, in determining whether a practice is unconscionable, the court should consider whether the creditor had reason to know, when the consumer entered into the transaction, that there was no reasonable probability of payment of the obligation in full by the consumer.55

Truth in Lending: 11.4 Who Is Liable? Creditors, Assignees, Servicers, Originators, and Others

Having determined who may bring the TILA action, the next question is who is liable for TILA violations. TILA’s civil liability provision, 15 U.S.C. § 1640(a), imposes liability upon “any creditor.” The general definition of “creditor” at section 1602(g) specifies that it is the “person to whom the debt arising from the consumer credit transaction is initially payable.” Whether a defendant qualifies as a “creditor” can also hinge on whether they extended “credit” as defined in TILA.409

Mortgage Lending: 4.1 Introduction

This chapter summarizes federal statutes that are relevant to preventing or challenging abusive mortgage lending. The application of these laws to particular mortgage origination abuses is discussed in more detail in Chapters 7–9, infra.

Mortgage Lending: 4.2.4.7 Potential Claims

There is no private right of action for failing to provide the good faith estimate,202 settlement statement,203 or information booklet.204 But there is a right of action for failing to provide the servicing transfer notice, as described in § 4.2.5, infra.

Mortgage Lending: 9.7.1 Description of Points

Many mortgage transactions include a charge for “points” paid before consummation. But there are different types of “points” and the term can be confusing for borrowers.236 In recognition of this, the Home Ownership and Equity Protection Act (HOEPA) broadly defines the term “points and fees” when measuring the cost of high-cost mortgage loans.237 Lenders most commonly refer to seller’s points, origination points, and discount points.

Mortgage Lending: 4.2.4.4.4 Rate increase and monthly payment disclosures

The settlement statement also includes a rate increase disclosure and a monthly payment disclosure that, unlike the good faith estimate, includes any escrow payment.181 The disclosure regarding potential rate increases is complex and may be misleading for some loans or incompatible with the terms of others, especially adjustable rate loans.

Mortgage Lending: 4.2.4.4.3 Use of average versus actual prices

While the settlement statement is intended to reflect the actual details of each transaction (in contrast to the good faith estimate), since January 2009, Regulation X has given loan originators the option of using average prices rather than stating the actual amount paid to third parties.175 Unless average pricing is used, the amount disclosed for any itemized service must be the actual amount received by the service provider,176 but there is no private right of action for violatio

Mortgage Lending: 4.2.4.5 Tolerance for Changes from Good Faith Estimate to Settlement Statement

Since 2010, the estimated charges and terms for all settlement services listed in the good faith estimate must remain available for at least ten business days, except for the interest rate and any charges or terms dependent on it (unless the borrower pays for a rate lock).184 If the borrower does not “express an intent to continue with an application” within the ten-day period, the originator will not be bound by the estimate.185 Otherwise certain categories of charges, as defined in Regulat

Mortgage Lending: 3.2.6 Documents Created After the Closing

Mortgage Transfer of Ownership Notices. In mortgage cases, it is useful to know not only the lender that originated the loan but also the entity currently holding the loan. Surprisingly, this is not always easy to determine, because the consumer’s contact is often with a different party: the servicer that the loan holder has hired to service the loan. The party holding the loan may be a securitization trust, with yet another entity being the trustee for the trust.37

Truth in Lending: 1.2.11a Constitutional Challenges to the CFPB’s Authority to Implement TILA

Ideological hostility to the CFPB existed since the agency’s inception, and recent years have witnessed a spike in judicial challenges to the Bureau’s authority. Certain broad attacks have questioned the constitutionality of virtually every function of the Bureau. If accepted, these arguments could potentially undermine the Bureau’s rulemaking authority and bring into question the validity of the CFPB’s amendments to Regulation Z.