Monday, July 23, 2012

Elder Financial Abuse

She was already in her late nineties, a renowned and beloved philanthropist, bearing a name that symbolizes wealth and status. Her son was already a senior citizen, when he schemed to rob her of her independence, her wealth, her properties, and her dignity. She was suffering from Alzheimer's Disease, chronic anemia, and other ailments that affect the elderly. Properties of great value were sold without the mother's knowledge, or with her dubious consent, and then no record was kept of the distribution of the proceeds. Roberta Brooke Astor died on August 13, 2007, at the age of 105.

On November 27, 2007, indictments on criminal charges were announced against Mrs. Astor's son, Anthony D. Marshall, and attorney Francis X. Morrissey Jr.

The criminal charges were grand larceny, criminal possession of stolen property, forgery, scheming to defraud, falsifying business records, offering a false instrument for filing, and conspiracy in plundering Mrs. Astor's $198 million estate. 

The trial of Marshall and Morrissey started March 30, 2009, and on October 8, 2009 the jury convicted Anthony D. Marshall of one of two charges of grand larceny, the most serious of a number of charges brought against him. The grand larceny conviction carries a mandatory prison sentence, meaning that Marshall could spend between 1 and 25 years in prison. Francis X. Morrissey Jr. was convicted of forgery.

All the money and status did not protect Brooke Astor from the depredations of her son.

If this happened to her, then, for most of the elderly, lacking the benefits of money and status, how may they hope to protect their financial interests from similar scurrilous plundering, when they are old and infirm?

The Consumer Financial Protection Bureau is involved in providing financial protection against elder abuse; indeed, it is specifically tasked with that responsibility. The Bureau's Office of Older Americans is charged by the Dodd-Frank Act with examining certifications of financial advisors who serve elderly individuals and it plans to make recommendations to Congress on how to protect older consumers. Recently, the CFPB issued an information request regarding Senior Financial Exploitation.

In considering the challenges that the elderly must face in order to avoid financial abuse, the following outline of the CFPB's recent information request should be looked upon as a set of questions, the answers to which may provide new ways and means to protect them from the snares of financial predators.



Announcing the Information Request
Senior Financial Advisor - Certifications and Designations
Providing Financial Advice and Planning Information
Senior Certification and Designation Information Sources
Financial Literacy
Financial Exploitation of Older Americans
Financial Exploitation of Older Veterans of the Armed Forces


Announcing the Information Request

Using statistics from a recent study, the Bureau noted that Americans ages 60 and up lost at least $2.9 billion to financial exploitation in 2010 and that the total increased by 12 percent between 2008 and 2010. From 2008 to 2010, there was a 12 percent increase in the amount of money scammed from seniors. Also, women are more likely than men to be victims, and exploitation is most frequently perpetrated by family members and other persons in a position of trust.

CFPB Director Richard Cordray gave a speech at the White House on June 11, 2012, discussing the issuance of an information request regarding elder financial abuse. Dodd-Frank includes provisions that are intended to directly address the needs of senior citizens. Director Cordray said that misusing credentials that certify a person as an advisor for elderly clients is elder financial abuse, which instance he cites as but one reason for the information request. According to Mr. Cordray, based on the study, for each case of elder financial abuse that is addressed, forty-two actually go unreported.

Skip Humphrey, who runs the Office of Older Americans, has stated that the Bureau plans to look specifically at the needs of senior veterans. He has also referenced pension buyout plans as a particular problem. And Naomi Karp, a policy analyst at the Office of Older Americans, has addressed the difficulty that older people may experience in finding trustworthy advice when they need it, but are suffering from age-related cognitive impairment.


The Bureau is seeking comments in response to these questions:

Evaluation of senior financial advisor certifications and designations.

Providing financial advice and planning information to seniors.

Senior certification and designation information sources.

Financial literacy efforts.

Financial exploitation of older Americans, including veterans of the Armed Forces.

Tuesday, July 17, 2012

Disclosure Integration, High Cost, and Counseling

On July 9, 2012, the CFPB issued its proposed integration of RESPA and TILA disclosures into the "integrated" forms, entitled "Loan Estimate" and "Closing Disclosure". These new forms are derived from the Good Faith Estimate (GFE), the Truth-in-Lending (TIL) Disclosure, and the HUD-1/1A Settlement Statement. This assemblage has been duly dubbed with the euphemism "integration".

Excluded from the forthcoming integration are reverse mortgages, home equity lines of credit (HELOCs), chattel dwelling loans, and de minimis originations consisting of loans made by creditors who make five or fewer otherwise covered loans per year.

I have covered the process of constructing these forms in several newsletters and articles, including HERE, and HERE.*

The CFPB is not expecting to finalize the integration before the end of this year. Comments are due November 6, 2012.

However, there is a comment deadline of September 7, 2012 - which will lead to rulemaking before January 2013 - regarding the extent to which the rule applies to loans previously exempted from RESPA or TILA and the further redefining of the term “finance charge” to include most costs associated with residential mortgage loans.

By its own admission, the CFPB has stated that the proposal to "broaden" the definition of a "finance charge" by adopting certain adjustments or accommodations in its HOEPA implementing regulations under Regulation Z, would "cause more loans to exceed the APR and points and fees triggers and be classified as high-cost mortgages under HOEPA."

The CFPB has also set forth proposed rules to implement Dodd-Frank amendments regarding high-cost mortgages and also to provide homeownership counseling provisions that would affect mortgage lending generally (with no exclusion for HELOCs).

The implications of these rules, taken together, are far reaching. I would suggest that you visit our Library for further information.

“Loan Estimate” and “Closing Disclosure”
High-Cost Mortgages
Homeownership Counseling

“Loan Estimate” and “Closing Disclosure”

  • The Loan Estimate replaces the GFE and early TIL, while the Closing Disclosure replaces the HUD-1/1A and final TIL.

  • HUD's Special Information Booklet will still be required.

  • The CFPB's proposal would combine five pages (seven if typical appraisal and servicing disclosures were to be counted) of TILA/RESPA data into a three-page Loan Estimate, not counting the written list of available providers that must be separately provided if the creditor allows a consumer to shop for a settlement service.

  • The Closing Disclosure is five pages.


The integration not only provides an entirely new format but also reconciles certain existing differences between Regulation X, the implementing regulation of RESPA and Regulation Z, the implementing regulation of TILA.


  • Redefines the term “application” by deleting the 7th component from the definition adopted by HUD, as outlined in its New RESPA Rule FAQs, as “any other information deemed necessary by the loan originator.”

  • Alters the coverage of the disclosure requirements so they would apply to home loans, except for the aforementioned exemptions.

  • Changes the timing and responsibility rules for providing closing disclosures.

Monday, July 9, 2012

CFPB: Treatment of Privileged Information - Final Rule

The Consumer Financial Protection Bureau (the "CFPB" or "Bureau") issued its Final Rule ("Rule") on July 5, 2012, adopting its Proposed Rule, without modification, regarding the confidential treatment of information by adding a new section providing that the submission by any person of any information to the Bureau in the course of the Bureau's supervisory or regulatory processes does not waive or otherwise affect any privilege such person may claim with respect to such information under Federal or State law as to any other person or entity.*

Also, the CFPB has amended its regulations to provide that its provision of privileged information to another Federal or State agency does not waive any applicable privilege, whether the privilege belongs to the CFPB or any other person.

The Final Rule implements the Proposed Rule, without modification, regarding the confidential treatment of information. The effective date is August 6, 2012.

To put the Final Rule in context, you might want to read my April 2012 review of the CFPB’s Proposed Rule with respect to the treatment of privileged information. Entitled The CFPB’s Treatment of Confidentiality and Privilege” (April 2012), my article outlined important considerations and also offers an Action Plan.

“CFPB’s Treatment of Confidentiality and Privilege”
Newsletter: HERE. (Abbreviated Version - March 2012)

Website Article: HERE. (Full Text - March 2012)

Article Download: HERE. (Publication - April 2012)
    Proposed Rule
    Certain Objections
    Certain Clarifications

    Proposed Rule

    On March 15, 2012, the CFPB published a notice and request for comment regarding its proposal to add a new section to its rules relating to the confidential treatment of information that would provide that any person's submission of information to the CFPB in
    the course of the CFPB's supervisory or regulatory processes will not waive any privilege such person may claim with respect to such information as to any other person or entity.

    According to the CFPB, the proposed rule was intended to provide protections for the confidentiality of privileged information substantively identical to the statutory provisions that apply to the submission of privileged information to the prudential regulators, and State and foreign bank regulators.

    In effect, the notice of proposed rulemaking reiterated the position set forth in CFPB Bulletin 12-01 ("Bulletin") that the submission of privileged information to the CFPB would not, under existing law, result in a waiver of any applicable privilege, and explained that the Bureau was exercising its rulemaking authority to codify this result in order to provide maximum assurances of confidentiality to the entities subject to its supervisory or regulatory authority.

    The proposed rule was intended to govern any claim, in Federal or State court, that a person has waived any applicable privilege, including the privilege for attorney work product, by providing such information to the Bureau in the exercise of its supervisory or regulatory processes.

    Certain Objections

    I will provide a sketch of the objections raised by twenty trade associations (with one letter being submitted on behalf of five trade associations), eight individual financial institutions, and two individuals.

    The Rule will have the effect of chilling attorney-client communications within supervised entities.
    Note: According to the CFPB, the Rule encourages and strengthens communications between supervised entities and their attorneys by providing additional protections for the confidentiality of those communications. The Rule itself does not require the submission of privileged information, but instead merely provides protections for privileged information that is submitted to the CFPB, voluntarily or otherwise.

    Tuesday, July 3, 2012

    CFPB: Next Up, Reverse Mortgages!

    In a June 28, 2012 Report to Congress, the Consumer Financial Protection Bureau (the CFPB or the Bureau) published its study of reverse mortgage transactions. This study was required by Section 1076 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

    The Report surmised that reverse mortgages are not being used as Congress originally intended, because, rather than provide income for borrowers during retirement, reverse mortgages are being provided to consumers at younger ages, thereby increasing the risk that these borrowers will go broke later in life. The study found that almost half of reverse mortgage borrowers in fiscal year 2011 were younger than 70 years of age.

    Furthermore, the Report concluded that 70% of reverse mortgage borrowers withdrew all the available funds at once in lump-sum payments, which the CFPB claims can be squandered quickly, leaving borrowers with the potential to face foreclosure due to the reduced ability to pay property taxes. According to the study, nearly 10% of reverse mortgagors (as of February 2012) were at risk of foreclosure.

    In its 231 page Report, the CFPB stated the following "emerging concerns":

    1. Reverse mortgages are complex products and difficult for consumers to understand.

    2. Reverse mortgage borrowers are using the loans in different ways than in the past, which increase risks to consumers.

    3. Product features, market dynamics, and industry practices also create risks for consumers.

    4. Counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs improvement in order to be able to meet these challenges.

    5. Some risks to consumers appear to have been adequately addressed by regulation, but remain a matter for supervision and enforcement, while other risks still require regulatory attention.

    The study identified four major topics "where additional research would help determine if additional consumer education or regulatory action is needed."

    Those topics are:

    (a) Factors influencing consumer decisions;
    (b) consumer use of reverse mortgage proceeds;
    (c) the longer-term outcomes of reverse mortgages; and
    (d) the differences in market dynamics and business practices among the broker, correspondent, and retail channels.

    On July 2, 2012, the CFPB began the process of investigating the consumer use of reverse mortgages. This procedure begins with a Notice and Request for Information. In effect, that CFPB now seeks comment and information from the public on the aforementioned topics.

    In this review of reverse mortgages, the CFPB will undertake, among other things, to identify any practice as unfair, deceptive, or abusive, and may provide for an integrated disclosure standard and model disclosures. Additionally, it will seek detailed information from the public on the factors that influence reverse mortgage consumers' decision-making, consumers' use of reverse mortgage loan proceeds, longer-term consumer outcomes of a decision to obtain a reverse mortgage, and differences in market dynamics and business practices among the broker, correspondent, and retail channels for reverse mortgages.

    In this article, I will outline the scope of information that the CFPB is seeking from the public, including consumers, housing counselors, financial institutions, and others, regarding consumer use of reverse mortgages and consumer experiences during the reverse mortgage shopping process.*

    Factors Influencing Consumer Decisions

    The CFPB asks the following questions regarding the factors that influence consumer decisions:
    1. What factors are most important to consumers in deciding whether to get a reverse mortgage?
    2. What factors are most important to consumers in choosing among products? Among other things, comments could address the choice between fixed-rate, lump-sum reverse mortgages and adjustable-rate, line-of-credit or monthly disbursement reverse mortgages.
    3. What factors are most important to consumers in choosing among potential lenders?