Pub. 5 2014 Issue 4

winter 2014 11 West Virginia Banker with the ATR Rule if the loan meets the definition of a QM. The consequences of not complying with the ATR Rule can be severe. A consumer may recover statutory damages equal to the sum of all finance charges and fees, actual damages, court costs, and attorneys’ fees. Plus, unlike the Truth- in-Lending’s one-year statute of limita- tions, a violation of the ATR Rule has a three-year statute of limitations. Further, statutory damages may be recovered by a consumer as a set-off in a foreclosure action, without regard to the statute of limitations. Assignees may also be subject to consumer claims. For a creditor, com- pliance is paramount. The ATR/QM Rule was going to curb the mortgage industry’s sins when it came to extending consumers what many consid- ered risky loans. But it went too far. The calculation of the 3% points and fees limitation is complicated. Rather than risk non-compliance, lenders set buffers below the 3% limitation in order to assure compliance. Investors and originators dis- agreed on the interpretation of the points and fees calculation, which then impeded the sale of certain loans in the secondary market. These factors, and others, then contributed to a tightening of credit. In response, the CFPB proposed an amendment in April 2014 to create a mechanism for curing points and fees overages if discovered after consummation of the loan. The final amendment became effective November 3, 2014, and applies to loans made after this date. If a lender determines after consumma- tion that the 3% cap was exceeded, then, so long as the loan otherwise meets the requirements of a QM, the loan will retain its status as a QM if the lender refunds the overage with interest at the loan’s rate of interest within 210 days of consummation. The refund can be made by check or any other means agreeable to the consumer. But there are conditions. The creditor must refund the overage before the con- sumer files suit and before the creditor gives the creditor written notice that the QM cap was exceeded. And the refund must be made before the consumer be- comes 60 days past due. Creditors must also maintain and follow policies and procedures for reviewing points and fees post-consummation (but a creditor need not review all loans), and for making pay- ment to cure any overage. According to the CFPB, the cure provi- sion will reinforce the need for robust post-consummation quality control and audit procedures and will limit repurchase demands. Over time, creditors will become less reliant on the points and fees buffer and become more confident in their com- pliance systems. Hence, the cure provision terminates on January 10, 2021. In sum- mary, the CFPB believes the availability of the cure provision will ease current market uncertainties, thereby increasing consum- ers’ access to affordable credit. Time will tell. n Debra Lee Hovatter is a Member based in Spilman Thomas & Battle’s Morgantown office. She is co-chair of the firm’s Consumer Finance Practice Group. Her primary areas of practice are consumer finance litigation and bankruptcy. She can be reached at 304.291.7951 or dhovatter@spilman- law.com.