Lawyers Enlist Mortgage Brokers to Find Plaintiffs, Sue Banks

By Kate Berry

MAY 24, 2012 6:44pm ET

“Why mortgage litigation is the next refi boom.”

That was the subject line of an email the Litigation Compliance Law Center sent out to mortgage brokers earlier this month. It was part of an invitation to a web seminar the Los Angeles law firm was setting up to introduce what the email termed an “increasingly profitable area of mortgage litigation.”

As the law center explained during the May 10 webinar, it was offering to pay finders’ fees to mortgage brokers for recruiting homeowners who themselves paid a $5,000 up-front “retainer” to affiliated attorneys.

The sales pitch appears to be the latest tactic in a cat-and-mouse game between plaintiffs’ attorneys and debt-modification firms on one side and regulators on the other.

The tactics used to sell loan modification services first became the focus of criticism in the media and elsewhere in the wake of the housing collapse a half-decade ago. Many related legal cases involve so-called mass joinder suits in which attorneys claim they can obtain favorable mortgage concessions from lenders, or can stop a foreclosure. Homeowners typically are required to pay $6,000 to $10,000 in advance but often fail to enjoy the advertised benefits.

Such suits have added to banks’ legal burdens and to concerns among regulators and bar associations that troubled homeowners are at growing risk of falling victim to mortgage modification scams. The State Bar of California alone has revoked the licenses of 18 lawyers since 2009 over charges related to loan modification wrongdoing.

The Federal Trade Commission responded to growing reports of abuse in late 2010 by implementing the Mortgage Assistance Relief Services rule. Known as Mars, it bans mortgage assistance relief companies – mortgage brokers, lead generators and affiliated marketing companies – from collecting “advance fees” from homeowners. Instead, loan modification firms are permitted to collect fees only after homeowners have received written loan modification offers that they deem acceptable from lenders or servicers.

Attorneys are exempted from Mars, primarily because they are already required to comply with state ethics rules. To be eligible for the Mars exemption, a lawyer must be licensed in the state where a homeowner-client resides, offer mortgage assistance as part of his regular practice and comply with all state regulations, says Reilly Dolan, assistant director in the FTC’s division of financial practices.

The FTC has brought 36 actions against companies under the Mars rule. Mars rulemaking authority was transferred last July to the Consumer Financial Protection Bureau, which is yet to launch any enforcement actions. The FTC and CFPB share Mars enforcement authority.

The Litigation Compliance Law Center says on its website that it’s involved in “the process of procuring clients” who want to file mortgage-related suits against banks. Mortgage brokers can earn a “six or seven figure income” by helping the law firm enlist homeowner-plaintiffs to pursue mortgage litigation, it adds.

The Litigation Compliance Law Center lists no physical address and Chad T-W Pratt Sr. as its only attorney. Pratt, a 1989 graduate of Loyola Law School, is separately listed as a senior litigation attorney at Real Estate Law Center PC. The Pasadena, Calif., firm appears to be a one-partner shop. Letterhead jointly bearing the name of the firm and Chad T-W Pratt & Associates Inc. lists as its local phone number 441-CHAD.

“Mortgage litigation is the homeowner suing their [sic] lender for predatory lending, robo-signing and bad acts by the lender,” Pratt said during the webinar. Pratt spoke only briefly at the beginning of the webinar. He then ceded the floor to Brian Suder, who was introduced by an unidentified presenter as a mortgage expert and a “superstar.” No job title or corporate affiliation was given for Suder. Not long afterward, the presenter said that Pratt was no longer online.

Contacted after the webinar by phone, Pratt declined comment and quickly hung up.

A Brian R. Suder is listed as president of an outfit called Home Rescue Programs of Marina del Rey, Calif., according to his LinkedIn profile. A person with the same name was banned from offering loan modification services in Washington state in 2010 after doing business without a mortgage broker’s license. That person was fined $12,000 and had to refund $9,195 in fees collected from at least four consumers, according to an order from the state’s Department of Financial Institutions. Brian R. Suder was also banned from engaging in loan modification services in Maryland in 2009 over a failure to obtain the required license, according to an order from the state’s Commissioner of Financial Regulation. He and four others were fined and ordered to refund more than $55,000 to at least 20 homeowners for failing to obtain loan modifications for them, the order states.

“The Law Center works only with mortgage professionals dealing with repercussions of Mars, and they’ve been able to transition their offices over,” Suder told his webinar audience. “We offer a much better product, more aggressive, with an aggressive stand against the lender. . We want people who already have existing mortgage companies. It’s a product in which a lot of people were doing mods [mortgage modifications] and veered away from that because of the legal repercussions.”

With his new product, “75% of all mortgages qualify for mortgage litigation,” Suder said. Mortgage brokers can “easily and quickly create a pipeline of 100 clients a month.”

Continued Suder: “You go ahead and you sell the retainer, which is typically $5,000, and we pay each broker for their [sic] expertise. This is set up so each mortgage company or marketing firm can market this product and we take over from there. Your clients get a phone call from an attorney prior to selling. It sets up the sale and they [clients] talk to a real attorney. . The litigating law firm does their [sic] own compliance call to make sure there are no guarantees. You can’t make guarantees.”

Efforts to contact Suder by phone at Home Rescue Programs were unsuccessful. Suder did not reply to an email request for comment sent to an address provided by Litigation Compliance Law Center. It is unclear how Suder and Home Rescue Programs are affiliated with the Litigation Compliance Law Center.

Following him on the webinar was a second lawyer, Deepak Parwatikar. Listed as an attorney with the Balanced Legal Group in Los Angeles, Parwatikar was suspended in 2004 from practicing law in California for one year and placed on three years’ probation. The penalties were the result of his failure to disclose $30,000 in civil judgments against him by a former employer, according to the state bar association’s website.

Parwatikar described to webinar participants how the $25 billion national mortgage settlement with the top five mortgage servicers has made banks especially vulnerable to lawsuits and other mortgage-related claims. “Bringing significant cases against the lenders these days is only going get them to want to get rid of cases,” he said. “They want these cases gone. They want the litigation gone completely. They don’t like the negative press.”

He also described how Litigation Compliance Law Center’s process would prevent brokers from running afoul of the FTC’s Mars rule and prohibitions on fee-splitting.

“We all know about the Mars issue,” Parwatikar said. “The FTC came in and gave exact terms on how you can market, who can market and the exact terms of what the violations might be. Mars does not include litigation. You have to watch out for the unauthorized practice of law. You have to have a potential client speak to an attorney and a nonattorney cannot give legal advice.”

On splitting fees with nonattorneys, Parwatikar said a law firm “can pay a fee to a nonattorney for a specific service but you cannot split fees or have a percentage of the fee” go to a nonlawyer.

Repeated calls to Balanced Legal’s toll-free number met with repeated busy signals. Parwatikar did not return messages left with the firm’s answering service.

Andrew Pizor, a staff attorney at the National Consumer Law Center, was not familiar with the Litigation Compliance Law Center. However, he is familiar with many unrelated cases in which plaintiff attorneys and mortgage brokers have cooperated to sidestep the intent, if not the letter, of the law. “To get the benefit of the attorney exemption [from the FTC's Mars rule], some companies will find an attorney who is willing to cooperate and is fronting a law license even if the attorney is not really participating in it,” Pizor says. “This seems to be a way to get referral business.”

Pizor fears the massive increase in loan modification firm suits could end up hurting homeowners with legitimate claims. “It’s a real serious issue, a complete abuse of the courts, and it runs the risk of prejudicing people, including judges, against legitimate claims,” he says.

Earnings Report Leaves Industry in Suspense on Lending

By Joe Adler

MAY 24, 2012 10:00am ET

WASHINGTON – If Tuesday’s bank earnings report by the Federal Deposit Insurance Corp. was the season finale of a hit TV series, viewers tuning in to get some insight on the state of lending were probably left unsatisfied.

The previous report had showed real hope for sustained lending growth. In contrast, the Quarterly Banking Profile released Tuesday was less encouraging, with loans falling in the first quarter by 0.8%.

But under the surface, the numbers were inconclusive. Loans still grew year-over-year, commercial lending keeps growing and other categories continue to climb toward positive ground. Meanwhile, despite the lower balances, mortgage originations actually rose and loan-sale gains increased sharply.

The takeaway on lending indicators was basically “stay tuned.”

“While most [loan] categories are still declining on a 12-month basis, the rates of decline have been diminishing,” acting FDIC Chairman Martin Gruenberg said at a press briefing. “The overall decline in loan balances is disappointing after we saw three quarters of growth last year. But separating the components gives us more perspective on the change, and we should be cautious in drawing conclusions from just one quarter.”

Moreover, bank profits continue to surge, and revenue seemed to make a comeback last quarter. Buoyed by the gains on loan sales – the $4 billion in gains was 130% higher than a year earlier – noninterest income rose 8% compared with the first quarter of 2011 to $63 billion.

The 3% growth in net operating revenue compared to a year earlier – to about $170 billion – was only the second such increase in five quarters. Overall, banks and thrifts earned $35.3 billion last quarter, their highest net income since the second quarter of 2007, and a nearly 23% increase from quarterly profits a year earlier.

The industry’s profit, which was 34% higher than in the previous quarter, also was helped by 38% rise – from a year earlier – in income stemming from fair-value changes in certain instruments. Increased revenue from fiduciary activities and service charges on deposit accounts also provided a lift.

The industry’s average return on assets rose above 1% for just the second time since the middle of 2007. Quarterly earnings for the industry have gone up, year-over-year, for 11 straight quarters. The FDIC said over 67% of all institutions had higher year-over-year income totals, and the 10.3% of institutions that were unprofitable was the lowest level since the second quarter of 2007.

“Revenue was higher in the first quarter than a year ago, while [loss] provisions were down. Both developments contributed to the increase in earnings,” Gruenberg said. “The year-over-year improvement in revenue was due mostly to noninterest income, particularly income from loan sales. But it remains to be seen whether banks can continue to sustain revenue growth going forward.”

Limits on what banks report for originations and loan sales also made loan activity hard to gauge. All institutions report gains from loan sales but only certain ones report originations and loan-sale volume, and even that data are limited to just home loans to be sold.

Still, the available data suggests that loan sales may have contributed to lower balances. Institutions over $1 billion of assets or that had more than $10 million in quarterly originations reported $476 billion in originations of closed-end mortgages to be sold, a 10% increase from the fourth quarter and a 35% increase from a year earlier. But sales on those loans were even higher, totaling $490 billion. (Origination data do not distinguish between new loans and refinancings.)

“The actual amounts . kept on balance sheet declined,” said Ross Waldrop, the FDIC’s senior banking analyst.

Officials also pointed to the tendency for credit-card borrowers to pay down their balances early in the year as a factor in the decline in total loans.

Meanwhile, other indicators were more encouraging. Total loans were still up 2% compared to a year earlier, and commercial and industrial loans rose 2% during the quarter to $1.37 trillion. Overall, total assets rose 0.3% compared to yearend 2011 to just under $14 trillion, as mortgage-backed securities rose 5% and investments in state and municipal securities increased 3.5%.

“Even with the decline in loans, bank balance sheets continued to grow. Total assets, deposits and capital all increased during the quarter and compared to a year ago,” Gruenberg said.

But in addition to mortgages, construction and development loans, nonfarm nonresidential loans and other loans to individuals have still not achieved positive growth. Residential mortgage balances declined 1% during the quarter to $1.86 trillion, and construction loans fell 4.9% to $228 billion.

Loan-loss provisions declined for the 10th straight quarter, falling by 31.6% from a year earlier to just over $14 billion, the smallest quarterly provision since the second quarter of 2007. Loan losses declined from the year-earlier total for the seventh straight quarter. Net charge-offs fell 34.8% from a year earlier to $21.8 billion, the lowest quarterly total in four years.

Even though asset quality has improved dramatically since the crisis, Gruenberg said, “noncurrent and charge-off rates remain elevated.”

“But the declining trend in troubled loans has meant that banks have been able to reduce their provisions for credit losses, and that more revenue is passing through to the bottom line,” he said.

The FDIC’s report also identified capital levels as being “at or near record levels.” The average leverage capital ratio at the end of the quarter of 9.2% “matched an all-time high,” while the average Tier 1 risk-based capital ratio of 13.28% was a new record.

The FDIC’s list of “problem” institutions fell by 41 institutions to 772. Assets for those on the list dropped by $27 billion to $292 billion. Meanwhile, the agency’s ratio of insurance reserves to insured deposits rose 5 basis points to 0.22%.

The Nation’s Housing Column: FHA may ease rules for mortgages on condos

By KENNETH R. HARNEY May 18, 2012

Thousands of condo unit owners and buyers around the country could soon be in line for some welcome news on mortgage financing: Though officials are mum on specifics, the Federal Housing Administration is readying changes to its controversial condominium rules that have rendered large numbers of units ineligible for low down-payment insured mortgages.

The revisions could remove at least some of the obstacles that have dissuaded condominium homeowner association boards from seeking FHA approvals or recertifications of their buildings for FHA loans during the past 18 months. Under the agency’s regulations, individual condo units in a building cannot be sold to buyers using FHA insured mortgages unless the property as a whole has been approved for financing.

According to condominium experts, realty agents, lenders and builders, FHA’s rules have become overly strict and have cut off unit buyers from their best source of low-cost mortgage money, thereby frustrating the real estate recovery that the Obama administration says it advocates.

Christopher L. Gardner, managing member of FHA Pros, LLC, a national consulting firm based in Northridge, Calif., that assists condo boards to obtain FHA approvals, said barely 25 percent of all condo projects that are potentially eligible for FHA financing are now approved. That is despite the fact, says Gardner, that FHA financing is the No. 1 mortgage choice for half of all condo buyers and is crucial to first-time and minority purchasers.

Moe Veissi, president of the National Association of Realtors and a broker in Miami, says FHA’s strict rules “have had an enormous impact on individuals” across the country, especially residents of condo projects who suddenly find they are unable to sell their units because their condo board has not sought or obtained approval from FHA as the result of objections to the agency’s strict criteria. This, in turn, depresses the prices unit owners can obtain and ultimately, said Veissi, harms their equity holdings and financial futures.

FHA officials defend their requirements as prudent and necessary to avoid insurance fund losses, but have expressed a willingness to reconsider some of the issues that have upset condo owners and the real estate industry. Among the biggest areas of criticism of FHA’s rules are its limitations on:

. Non-owner occupancy. The agency requires that no more than 50 percent of the units in a project or building be non-owner-occupied. This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals.

. Delinquent condo association fee payments. FHA refuses to approve a project where more than 15 percent of the units are 30 days or more behind on payments of condo fees to the association. Given the state of the economy, this has been a problem for thousands of associations, even in relatively prosperous markets. Steve Stamets, a loan officer with Apex Home Loans in Rockville, Md., says some unit sellers and buyers have been so frustrated by the rule that they have offered to pay the amount of delinquent fees needed to bring the overall project into compliance “just to get the deal done. This is a ridiculous situation,” said Stamets, who added: “When somebody calls up now and says they want to buy a condo with an FHA loan I cringe.”

. Non-residential space usage. FHA has set a cap of 25 percent of the total floor space in a project for commercial use. Critics say this is too low and unrealistic for condo projects in urban areas, where retail and office revenues can be important to overall financial feasibility.

The agency has imposed a long list of other requirements on insurance and reserves, plus a highly controversial rule that associations interpret as creating severe legal liabilities for condo board officers if applications for FHA approvals contain inaccuracies. Andrew Fortin, vice president for government and public affairs at Dallas-based Associa, one of the country’s largest homeowner association management firms, says that many boards, facing the prospect of up to 30 years in prison and heavy financial penalties, have refused to apply solely because of this personal liability requirement.

FHA is expected to clarify the personal liability language and make other modifications in its forthcoming rules. Whether the changes will be enough to convince condo boards to apply for approvals in large numbers is uncertain, but industry experts say they – and condo unit owners – are likely to welcome whatever loosening of the current restrictions FHA can offer.

CFPB Confidentiality Bill Runs into a One-Man Roadblock

By Kevin Wack

MAY 15, 2012 5:33pm ET

Despite strong bipartisan support, a bill that would provide banks greater assurance of confidentiality when they provide information to the Consumer Financial Protection Bureau remains mired in the Senate.

Exactly why is hard to unravel, but most industry representatives point to Sen. Bob Corker as the chief roadblock. The Tennessee Republican acknowledged in an interview this week that he is blocking the bill’s enactment even though he supports the idea behind the legislation.

“We understand that’s a problem in giving up confidential information, and we’d like to see a fix,” Corker said Tuesday.

According to Senate rules, a single senator can hold up legislation through a maneuver known as a hold, which required 60 votes and precious time on the Senate calendar to overcome.

Corker argued his delay wasn’t technically a “hold” but instead a desire to attach the bill to a larger package of technical fixes to the Dodd-Frank Act.

“I think it’d be too strong to say we have a hold on that right now,” Corker said. “We would like to see some other things – again that are technical in nature and have bipartisan support – fixed also.”

Both Corker and industry representatives said the Tennessee Republican is not the only lawmaker to hold up the measure, but he is believed to be the key obstacle.

Still, several industry observers worry that Corker’s gambit has the potential to derail what they see as a small but meaningful correction in federal law.

In addition to having near-unanimous support on Capitol Hill, the House-passed bill also has the endorsement of the CFPB.

The bill would address banks’ concern that under current law, if they share information that is subject to the attorney-client privilege with the CFPB, that action could later be construed by a court as a waiver of the privilege, which could result in the bank having to turn the information over to other parties in litigation.

The problem with Corker’s attempt to pass the measure as part of a package of fixes to Dodd-Frank, industry representatives say, is that there is no consensus in Congress about what constitutes a technical fix to the 2010 reform law.

Corker did suggest in Tuesday’s interview that he has not dug in his heels too deeply regarding the House-passed bill.

“We understand we may get to a point where there’s no other avenue but to let this go through,” he said.

In the meantime, a separate, broader legislative proposal has been circulating in the House Financial Services Committee.

This second legislative proposal, a copy of which was obtained by American Banker, would broaden the protections provided to financial institutions when they share privileged information with the CFPB.

The second bill would offer protection to financial institutions with regard to information they provide to the CFPB and the bureau in turn shares with a state regulator.

The proposal would appear to benefit non-bank lenders, such as mortgage brokers, which have reason to expect that the CFPB will be sharing examination information with their state regulators.

In a recent letter to the leaders of the House Financial Services Committee and the Senate Banking Committee, the American Financial Services Association, the National Association of Mortgage Brokers and other groups that represent non-bank lenders expressed support for broadening the language in the bill already passed by the House.

“Our goal is to provide parity among examined companies of all types,” the groups wrote, “and we do not seek to advantage any type of creditor.”

Within banking industry circles, reaction was split on whether the broader legislative language being circulated in the House is a positive development.

Christopher Willis, a lawyer at Ballard Spahr, said that the new legislative language would address a problem with the House-passed bill – that it leaves unresolved the status of documents that the CFPB shares with the states.

“I’ve referred to the legislation that’s come through the House as a partial fix,” he said.

But others cautioned that broadening the legislation is a risky move that could jeopardize the support of the CFPB and Democrats in Congress.

One former Hill staffer was critical of Corker in the context of the changes being contemplated in the House, saying: “I think it does show that the delay is going to have untold consequences, which is unfortunate for the core bill, which needs to be streamlined in order to get through the Senate.”

Other bank industry officials expressed greater patience with the Tennessee Republican.

“Sometimes a meal takes a little bit longer to cook than you anticipate,” said James Ballentine, executive vice president of congressional relations at the American Bankers Association, adding that he would like to get the bill passed before the end of the year. “Time is certainly slipping through our fingers quickly.”

Paul Merski, executive vice president and chief economist at the Independent Community Bankers of America, also declined to criticize Corker.

“I don’t have any concerns with a senator using his Senate powers to bring attention to his other concerns. That’s part of the Senate process,” Merski said. “It’s a very deliberative body.”

Why CFPB Must Share Oversight on Consumer Policy

By Joe Adler

MAY 14, 2012 7:23pm ET

WASHINGTON – The conventional wisdom is the federal agency born out of the crisis – the Consumer Financial Protection Bureau – is the last word on financial consumer regulatory policy, with other more established regulators playing a supporting role.

But a growing number of experts are putting more stock in the authority older agencies kept in the Dodd-Frank Act to enforce consumer rules at small banks they supervise, and see one policy in particular – the ban on “unfair, deceptive or abusive acts or practices” – where the prudential regulators could carry substantial weight.

“Even though it is clear today the CFPB is the leader on consumer rules, that doesn’t have to be the case for every aspect of consumer issues going forward,” said Kip Weissman, a partner at Luse, Gorman, Pomerenk & Schick.

Dodd-Frank gave the CFPB vast authority to write rules for banks and nonbanks to comply with preexisting and new consumer statutes, as well as enforcement powers over larger institutions. But the bank regulators – Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency – kept authority to ensure their institutions under $10 billion in assets were in compliance with the statute and any implementing regulations.

That is still the rule of thumb under UDAAP. The law took rule-writing for the old “unfair or deceptive acts or practices” standard for banks away from the Fed – giving it to the CFPB – and also authorized the bureau to write rules around the new “abusive” standard. (The Federal Trade Commission retained rule-writing authority for certain nonfinancial companies.)

But absent a rule, some observers say, the prudential agencies have the ability to put the new standard to work if they see an institution under their watch committing an infraction.

If there is not a rule on the books, “there is an obligation for them to make sure their institutions are not violating the law,” said Michael Calhoun, president of the Center for Responsible Lending. “The CFPB has signaled that certainly in the short run they’re not going to come out with a wide range of specified unfair, deceptive and abusive rules. . Historically, the CFPB is following the tradition that how this is enforced is through enforcement in individual cases.”

In a recent American Banker interview, CFPB Director Richard Cordray said the new “abusive” standard was “pretty well-defined” in the law, and indicated that enforcement actions may be the model for how the standard is established.

“We have given some exam guidance around these concepts, and I think maybe we’ll have more to say over time. I don’t anticipate us writing a rule around UDAAP,” Cordray said. “Again, I think a lot of the law is really clear in that area, and what is maybe not clear to people because they haven’t had experience with it has been specifically defined by Congress, so that is what it is. We’ll continue to develop as we go.”

While interpretations of the law are still being debated, many believe the agencies’ surviving authorities – cast against Cordray’s remarks – give them significant authority in the UDAAP regime for institutions they supervise under the $10 billion threshold. In addition to outlining the preexisting UDAP framework, Dodd-Frank said abusive acts or practices, among other things, are those that interfere with a customer’s ability to understand terms or take advantage of someone’s lack of understanding about a product’s risk.

The other agencies “could look at whatever regulation is adopted by the bureau down the road, but there is a statute out there that defines abusive. I don’t think the bank regulators, if they see a practice that is unfair or deceptive or abusive, I don’t think they’re going to feel constrained not to use their enforcement powers,” said Michael Mierzewski, a partner at Arnold & Porter LLP. “I don’t think they have to wait.”

With the regulators still in an aggressive stance coming out of the crisis and Dodd-Frank passage, the bureau will likely set the tone for all the agencies on UDAAP and other measures. But if the CFPB does not promulgate a rule, the other regulators would have a strong device for acting in the future if the bureau became less aggressive under different political leadership.

“The whole legislative scheme envisions that new” practices subject to UDAAP “may arise in the future. At that point we may be in a different political environment with different leadership of the agencies,” said Weissman. “If in the future the bureau is headed by a less aggressive director and another banking agency is more consumer-oriented, we could see another agency take the lead.”

But even though Dodd-Frank gave some guidance about how UDAAP is defined, the path forward is still marked by uncertainty, especially since there have not been any enforcement actions in the new regime.

The industry has been most concerned about the addition of the new “abusive” standard, which some say could cover relatively benign practices, and there is additional confusion about how the three different standards – unfair, deceptive and abusive – could overlap.

“Everything about UDAAP is in flux and to the extent we’re trying to pin down clear guidance we’re going to have to be patient. It’s going to unfold over time,” said Jo Ann Barefoot, a co-chairman of Treliant Risk Advisors.

Barefoot said without an implementing rule for the new “abusive” standard, all the agencies have found the pre-Dodd-Frank UDAP authority sufficient in monitoring institutions for compliance.

“The other agencies have been aggressively enforcing UDAAP and will continue to do so. What I hear from the other regulators is the ‘abusive’ standard isn’t an essential tool, since ‘unfair and deceptive’ is covering the issue,” she said. “Over time we’ll have more clarity, but right now the regulators are taking the broad mandate under UDAAP and they’re all enforcing it, including the bureau.”

However, she added, ultimately it will be the bureau that will set the tone.

“My prediction is the bureau will dominate this issue with its enforcement actions and interpretations. It’s possible though that one of the other agencies will take a different view,” she said. “There is a lot of interagency dynamism. . But the more likely scenario is the bureau will take enforcement actions that amount to guidance for the other agencies.”

But some noted there is precedent in the old UDAP regime – which was part of the Federal Trade Commission Act – for a regulator that lacked rulemaking authority to act without there being a specific regulation. Specifically, in 2000, the OCC took action against San Francisco-based Providian Bank for allegedly deceptive credit card marketing practices. At that time, only the Fed had authority to issue FTC-related rules for banks identifying unfair and deceptive practices. (The now-defunct Office of Thrift Supervision had rulemaking authority for savings-and-loan institutions.) But no such rules existed.

In a 2004 American Banker interview, Jerry Hawke, who had been comptroller when the agency targeted Providian, said the OCC had found that even “without the benefit of a defining rule, we could bring an action and prove the facts of a particular case that the conduct was unfair or deceptive.” Though the OCC’s authority was challenged somewhat at the time, the agency got backing in a written opinion from then Fed Chairman Alan Greenspan.

“When Providian came out, there were those including some at the FTC who thought the OCC didn’t have authority to enforce section 5 of the FTC Act because the Federal Reserve Board had not promulgated implementing regulations. . But Jerry Hawke as comptroller wasn’t afraid to flex his muscles even in the absence of Fed regulations,” said Mierzewski. “Just as the regulators had interpreted section 5 of the FTC act, I think they’re going to feel they have the authority to interpret the new abusive standard if they see a practice that satisfies the elements of the statutory language.”

Yet industry representatives are hoping for a common approach by the agencies so enforcement is consistent across different charter types.

“Right now we’re not seeing any real regulatory activity involving the new ‘abusive’ area. It’s one which the bankers would rather have some upfront, explicit guidance about where future application might occur, rather than see it cited out of the blue in a gotcha approach during an exam,” said Richard Riese, senior vice president for the American Bankers Association’s Center for Regulatory Compliance.

“The way the statue is written it appears a bank could receive an enforcement action or a supervisory criticism under the new abusive standard without a new rule being written. From an industry perspective, we believe clarity around the new UDAAP standards should be an interagency development.”

Elizabeth Eurgubian, vice president and regulatory counsel for the Independent Community Bankers of America, agreed. “Consistent application across all of the regulatory agencies, including the CFPB” is important, she said.