Due to a recent enforcement action taken by the Consumer Financial Protection Bureau (CFPB) against a non-depository mortgage lender, the reverse mortgage industry may be able to take some lessons concerning its own compliance posture, according to an interview with a legal specialist conducted by RMD.
Earlier this month, the CFPB issued an enforcement action against a Chicago-based non-bank mortgage lender and broker, alleging that the organization participated in “redlining” in metropolitan Chicago neighborhoods, meaning that the lender allegedly discouraged prospective applicants from applying for mortgage loans on the basis of race.
While the specifics of the action may not be universally applicable to the reverse mortgage business, the fact that the CFPB issued this action against a non-bank lender and broker raises natural questions concerning whether or not the Bureau might more broadly target other non-bank lenders that operate within the realm of reverse mortgages, and what those lenders can do in order to remain compliant with applicable regulations and to avoid enforcement actions. This could have particular relevance to compliance in advertising practices.
Circumstances of enforcement, reverse mortgage application
While the specific intricacies of this enforcement action do not appear, on its face, to have broader reverse mortgage relevance, it does open the possibility of reverse mortgage-specific enforcement actions if certain observations about industry practices take place on the part of regulating authorities. This is according to Tori Shinohara, partner at law firm Mayer Brown in Washington, D.C.
“The CFPB’s recent redlining lawsuit is the first public enforcement action against a non-depository institution,” Shinohara tells RMD. “Historically, federal regulators have brought redlining cases only against depository institutions and specifically, forward mortgage lenders. In its lawsuit, the CFPB uses a ‘totality of the circumstances’ approach to allege that the target company engaged in ‘redlining’ of predominantly African-American areas in the Chicago metropolitan statistical area (MSA).”
Generally speaking, the kind of enforcement observed recently runs counter to the kinds of problems the CFPB has raised specifically about reverse mortgage businesses in the past, Shinohara explains.
“Although there is nothing precluding a regulator from applying the same ‘totality of the circumstances’ framework to a redlining claim against a reverse mortgage lender, reverse mortgages are a distinct product and business model, and I would argue that would be a bit like trying to fit a square peg into a round hole,” she says.
For reverse mortgage companies, regulators have typically criticized lenders for being what they describe as too “aggressive” in marketing techniques, Shinohara says.
“[Regulators] either allege that the reverse mortgage lenders engaged in unfair, deceptive, or abusive acts or practices (UDAAPs) or allege ‘reverse redlining’ – the targeting of majority-minority communities for products that regulators view as predatory,” she says.
Reverse mortgage lessons to learn from the enforcement action
Still, while the circumstances are different when looked at more broadly, it’s the specifics that could bring greater relevance to the reverse mortgage industry related to what it should observe in terms of advertising practices going forward.
“There are lessons to be gleaned from the CFPB’s recent redlining lawsuit that apply broadly to all lenders, including reverse mortgage lenders,” Shinohara shares. “In the digital age, all forms of marketing (including social media) may be scrutinized by regulators and plaintiffs’ attorneys.”
This means that reverse mortgage companies would likely be well-served by heavily scrutinizing marketing practices as well as marketing materials, particularly as the demographic served by reverse mortgages will only spend more time in online arenas as time goes on, Shinohara describes.
“I think there’s just a general compliance takeaway, which is whatever you’re putting out in the public domain — whether it’s a podcast or a post on Facebook or Twitter, or whether it’s a pretty traditional kind of flyer or mailer — all of that is going to be low-hanging fruit for a regulator,” she says. “Once you put it out in the public domain, it’s very easy for a regulator or consumer to see it, so you want to be very careful in making sure that your marketing compliance policies, procedures and practices are robust.”
In the past, the CFPB’s targeting of reverse mortgage businesses were centered on UDAAP, particularly as it pertains to marketing practices. Shoring up those practices in light of a non-bank lender being targeted for enforcement would be potentially prudent for a lender or other industry participant, Shinohara says.
“Also, implementing a strong fair lending compliance management system, including a written fair lending policy, effective fair lending training, and appropriate senior management oversight, can help demonstrate a [reverse mortgage] lender’s commitment to fair lending,” she adds.
Ensuring compliance with changing regulations
If there’s any constant in the reverse mortgage industry, it is change. Over the past several years, the industry has contended with a series of new rules and regulations handed down by the Federal Housing Administration (FHA) or the Department of Housing and Urban Development (HUD).
Because of those changes, lenders who release advertising in forms of new media that are made available long after a point of initial availability — such as a podcast that continues to be available as long as its feed is maintained by the author — may be well-served by specifying around a legacy piece of advertising content that in the future, the regulatory climate around reverse mortgage products could change, and that the relevant piece of content may not be entirely reflective of whatever a current regulatory climate is like.
This would be a step a lender could take out of an abundance of caution in ensuring compliance, even if a regulator is not guaranteed to go after them for old, continuously-available advertising that has a date attached to it, Shinohara says.
“I don’t want to say that this could never happen, but the regulators typically can find enough current issues or violations of law — or what they believe to be violations of law — that they wouldn’t necessarily focus on trying to make a more difficult case involving retroactive effects of a new law or new interpretive guidance,” she says. “But at the same time, I think the more that you can do to make sure that everything you put out there is compliant with existing law and regulation, the better.”
Read Mayer Brown’s article concerning the enforcement action.