Crossing the Rubicon: ILSA Now Administered by the Consumer Financial Protection Bureau

Robert Chasnow is a Partner in our Washington, D.C. office.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, effective July 21, 2010, was conceived as the federal response to what is often referred to as this country's greatest economic recession since the Great Depression. The Act focuses extensively on banking and securities. Although Title X of the Act (codified at 12 U.S.C.A. Section 5511) establishes the Consumer Financial Protection Bureau (CFPB or "Bureau") and grants it extensive authority over banking and securities, Title X also consolidates under the Bureau's authority administration of a number of consumer-oriented financial and real estate laws to commence on July 21, 2011.

Although most of the consumer-oriented statutes whose administration is transferred to the Bureau are financial in nature and were previously administered by such agencies as the Federal Reserve Board, Office of Comptroller of the Currency and the Federal Trade Commission (FTC), two statutes administered by the Department of Housing and Urban Development (HUD) were shifted as well. The two statutes are the Real Estate Settlement Procedures Act and the Interstate Land Sales Full Disclosure Act (ILSA), 15 U.S. C. 1700 et seq. This alert focuses on the CFPB's initial administration of ILSA and suggests select issues which the Bureau may wish to consider.

Orientation of the CFPB

The landing page of the CFPB website paints its field brightly for all to see:

"The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products. At the consumer bureau, we will:

EDUCATE An informed consumer is the first line of defense against abusive practices. The CFPB will work to promote financial education.

ENFORCE Like a neighborhood cop on the beat, the CFPB will supervise banks, credit unions, and financial companies, and it will enforce Federal consumer financial laws.

STUDY The consumer bureau will gather and analyze available information to better understand consumers, financial services providers, and consumer financial markets."

The Bureau is organized into four main divisions: Consumer Education and Engagement; Research Markets and Regulations; Supervision Fair Lending and Enforcement; and External Affairs. While aspects of ILSA may touch all four divisions, the daily operational administration of ILSA will be handled by the Non-Bank Supervision group of the Supervision, Fair Lending and Enforcement Division.

ILSA Transition

The Bureau published in the Federal Register on May 31, 2011 ("Bureau's May 31, 2011 FR Notice"), a list of the rules and orders that it will enforce relative to the statutes which it newly administers. As to ILSA, the following sections of regulations previously promulgated by HUD were expressly transitioned to the CFPB:

24 CFR 26.28-.56 – Hearing Procedures Pursuant to the Administrative Procedure Act 24 CFR Part 30 – Civil Money Penalties 24 CFR Part 1710 – Land Registration 24 CFR Part 1715 – Purchasers' Revocation Rights, Sales Practices and Standards 24 CFR Part 1720 – Formal Procedures and Rules of Practice 24 CFR Part 3800 – Investigations Seeing the full complement of six ILSA sets of regulations is bracing. Although the 1710, 1715 and 1720 series are quite familiar to experienced practitioners, the three less familiar parts, 26, 30 and 3800, remind us that:

formal administrative hearings can be initiated upon allegations of violation of any provision subpoena power against private parties is fully available at the administrative level both as to production of documents and to compel live testimony administrative civil penalty authority exists relative to "any person who knowingly and materially violates any provision of ILSA or the rules and regulations" where "[e]ach day that a violation continues shall constitute a separate violation" with up to $1,375,000 per person "for each violation ... during any one-year period" Although rarely imposed in the past 20 years during HUD's administration of ILSA, these tools remain formidable and are now securely located in the CFPB's tool kit.

The Exemption Guidelines: Have They Transitioned to the CFPB?

Another important result of the Bureau's May 31, 2011 FR Notice is that the Supplemental Information to Part 1710: Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act ("Exemption Guidelines") is not explicitly included in the group of six sets of CFR regulations. In a recent teleconference with a number of private practice lawyers and other parties involved with the ILSA program hosted by Peggy Twohig, Director of the Non-Bank Supervision office, she noted that the Exemption Guidelines had not been carried over from HUD but that she foresees a time when new, updated guidance will be drafted, aired and provided. However, a footnote in the text of the Bureau's May 31, 2011 FR Notice suggests the current Guidelines may still be in effect. Footnote 8 states, "Unless...