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CHLA Letter Seeks Exemption for Smaller IMBs from Redundant CFPB Form Contract Rule

The Community Home Lenders of America (CHLA) today sent a Comment Letter to the Consumer Financial Protection Bureau (CFPB) seeking an exemption for smaller independent mortgage banks (IMBs) from a proposed rule requiring submission of contracts that seek to waive or limit consumer legal protections.

“CHLA supports the objectives cited in the Bureau’s press release of increasing public awareness of terms and conditions in form contracts that restrict consumers’ rights.  We also understand why the Bureau would want to establish this requirement for the wide range of non-bank financial firms and products that are subject to few federal consumer protection laws and have little federal or state regulatory supervision,” the CHLA letter said.

However, we see no real consumer benefit of imposing this requirement on mortgage lender-servicers, since a large number of federal consumer protections already exist that cannot be waived by contract – including a ban on arbitration and other actions limiting consumer legal rights.”

The CHLA letter pointed to Section 1414(e) of Dodd-Frank, that bars mortgage lenders from requiring arbitration or otherwise limiting consumers’ legal rights, and cited the large number of other federal mortgage consumer protection laws like QM, LO Comp, and RESPA, that cannot be waived by contract – to argue that this requirement is redundant with respect to mortgage lender/servicers.

The CHLA letter then pointed out that imposing new compliance burdens like this on smaller IMBs could lead to more industry concentration, which is bad for consumers – and cited reasons for why the 223-page rule imposes a disproportionate compliance burden on smaller IMBs

  1. Smaller IMBs lack the volume economies of scale necessary to spread compliance costs over a larger revenue base, making smaller IMBs less able to offer competitive loan rates and fees.
  2. This impact is exacerbated by the current substantial reduction in mortgage loan volume.
  3. A detailed legal analysis of this 223-page rule will divert significant time from an IMB’s staff, to determine whether contracts – many provided by third parties – meet the standard for submission. 
  4. Concerns about liability exposure will also result in smaller IMBs having to spend substantial resources – e.g. to hire third-party lawyers and consultants – to determine potential rule liability. 
  5. Concerns that even one IMB might submit a third-party provided contract could cause others to make inappropriate and misleading designations out of an abundance of legal caution.

The CHLA letter stated that “The proposed rule’s exemption for firms with less than $1 million in revenues is meaningless for mortgage lenders” and concluded by noting that: 

“Ironically, the large number of federal consumer mortgage rules protecting consumers necessitates more contracts than products with fewer protections – and a greater rule compliance burden.”