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Dodd-Frank and Settlement ‘Vetting’
In July 2010 the Wall Street Reform and Consumer Protection Act, P.L. 111-203 (commonly known as Dodd-Frank), was signed into law. Among other provisions, the Act created the Consumer Financial Protection Bureau [“CFPB”], which has assumed responsibility for regulation of certain lenders on a national basis. On April 13, 2012, the CFPB issued Bulletin No.2012-03, entitled “Service Providers”. The bulletin advises lenders that although “...the use of service providers is often an appropriate business decision... the mere fact that a ...bank enters into a business relationship with a service provider does not absolve the ...bank of responsibility for complying with Federal consumer financial law to avoid consumer harm”. In other words, lenders may be held responsible for the actions of third-party vendors with which they do business.
How does this affect the title industry? Some lenders have reacted to the CFPB bulletin by demanding that closing or settlement agents undergo an approval process before they will be permitted to handle the lender’s funds. To this end, so-called “vetting companies” have convinced certain lenders that settlement service providers should be evaluated through a process which involves an investigation into the agents’ financial stability and creditworthiness. (Of course, the cost is borne by the agents, rather than by the lenders.) However, there seems to be an incongruity between the guidelines set forth in the CFPB’s bulletin and the vetting process, as the former does not discuss the financial health of service providers, while the latter focuses exclusively on the same. Consequently, lenders relying on certifications from vetting companies as proof of compliance with CFPB guidelines may find their reliance to have been misplaced.

In response to concerns expressed by agents and underwriters, ALTA is in the process of developing a set of settlement-related “best practices”, which are intended to be congruent with CFPB guidelines, including the following:

?Establish and maintain current license(s) as required in order to conduct the business of title insurance and settlement services.
?Adopt and maintain appropriate written procedures and controls for escrow trust accounts, allowing for electronic verification of reconciliation.
?Adopt and maintain a written policy and information security plan to protect non-public personal information as required by law.
?Adopt standard real estate settlement procedures and policies that ensure compliance with federal and state consumer financial laws.
?Adopt and maintain written procedures related to title policy production, delivery, recording and premium remittance.
?Maintain professional liability insurance and fidelity coverage.
?Adopt and maintain procedures for resolving consumer complaints.
It is anticipated that lenders will recognize that adherence by settlement service providers to the foregoing practices will provide greater assurance of compliance with the CFPB’s expectations than certifi- cations obtained from vetting companies.
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