For the past 10 years, lenders repeatedly have been asked by their regulators, and recently the CFPB, to demonstrate they are exercising appropriate due diligence and supervision over the title and closing agents who handle their customer’s non-public, personal information. Lenders also are required to demonstrate that closing agents are treating all consumers fairly as required under applicable statutes and regulations. As a proposed solution to the ongoing regulatory pressure on lenders, ALTA developed a set of Best Practices standards that could be utilized to provide regulators with evidence that the lender’s title and closing agents were exercising appropriate industry practices and operating in accordance with the laws and regulations imposed on both the agent and the lender.
Although ALTA’s Best Practices standards can be justified as a solution to one of the lending community’s regulatory problems, they also serve the title industry in several different ways. First, they are a tool that can prevent title and closing agents from being bombarded with multiple requests to complete dozens of different questionnaires and forms, all asking for similar information. Secondly, the standards alleviate the title agent’s need to submit confidential information about their bank accounts and staff to dozens of different lenders. Lastly, they provide title professionals with a workable framework designed to enhance the lenders’ confidence in using the agency.
Although ALTA’s intent was to provide a workable solution to both title agents and lenders, both groups continued to voice the same question: If I adopt or require ALTA’s Best Practices standards, will the CFPB and the financial institution regulators deem such action sufficient?
Unfortunately, there have been no directives or other guidance letters issued by the CFPB, or any other regulator, to assure lenders that compliance with ALTA’s Best Practices standards ensures that due diligence and supervision requirements have been met. Without such assurance from the CFPB or other regulators that receipt of proof of Best Practices compliance would meet their due diligence obligations, many lenders remain confused about compliance. Although a growing group of lenders have begun to require proof of Best Practices compliance, other lenders have reacted by limiting the number of title professionals authorized to remain on their “approved closing agent” rolls. In order to avoid the continuance of this trend, ALTA has begun to advocate on behalf of the title professionals.
In an effort to help eliminate the lenders’ confusion on what actions to take, ALTA recently sent a letter to the CFPB Director, Richard Cordray, urging the CFPB to make a public statement to lenders indicating the agency’s support of ALTA Best Practices. The letter sought “A public statement in support of the ALTA Best Practices from the Consumer Bureau [which] would provide much desired clarity and guidance to supervised entities.” ALTA argues that without such guidance, lenders will continue to significantly reduce the number of approved title and settlement agents on the lender’s approved vendor list, and the right of a consumer to choose the settlement agent of their choice will be unduly compromised.
In addition to requesting the public support of Best Practices, ALTA suggests two additions to the CFPB’s Supervision and Examination Manual.
The first addition would include language that aligns the criteria lenders apply to third parties with the criteria lenders use to assess their own internal processes. Specifically, ALTA suggests adding the following language:
“The compliance management program for service providers is tailored to the size, nature, and complexity of the service provider, and the number of consumers who may be directly impacted.”
That language arguably would allow the examiners to take into account the size of smaller settlement companies, and approve the lender’s employment of their services, even if they failed to implement all of the more stringent procedures that would be expected of much larger settlement organizations.
The second proposed addition encourages the CFPB to evaluate whether the consumer’s choice of title agency is adversely impacted by the lender’s service provider policy. ALTA requests that the lender’s policy be evaluated to “ensure it does not impair consumers’ ability to select the service provider of their choice.”
The letter ends by encouraging the CFPB to provide examples of strong and weak practices in service provider management programs as seen by CFPB examiners.
ATLA’s continued advocacy for Best Practices helps the title and settlement industry by establishing the credibility of a reasonable compliance program. In the absence of this advocacy, lenders may place unreasonable demands on title and settlement agents that result in compliance costs far too high for most agents. By petitioning the CFPB to support Best Practices, ALTA can address the CFPB’s concerns about consumer choice and the protection of consumer information while also addressing the title industry’s concerns about maintaining a viable business model in an increasingly regulated environment.