New HUD Final Rule Includes Broad Lawyer Exemption From SAFE Act

ABA scores victory for lawyers, consumers

The ABA scored another victory this summer when the Department of Housing and Urban Development (HUD) included a broad exemption for attorneys in a new rule implementing the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).

The action by HUD followed other lawyer exemptions adopted at the urging of the ABA and state and local bars during the past year as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Trade Commission’s final Mortgage Assistance Relief Services (MARS) Rule.

The Dodd-Frank law includes a broad practice-of-law exclusion specifically stating that the new Consumer Financial Protection Bureau (CFPB) will have no supervisory or enforcement authority over lawyers engaged in the practice of law who are in an attorney-client relationship with consumer clients. The new HUD final rule is consistent with the Dodd-Frank exclusion but more closely tracks the attorney exemption in the FTC MARS Rule, which exempts the vast majority of practicing lawyers who help consumer clients renegotiate their mortgages to avoid foreclosure.

HUD included a broad exemption for attorneys in its final rule implementing the SAFE Act after the ABA and state bar associations in Florida, Missouri, New Hampshire, North Carolina and Oregon urged the department to expand a narrower lawyer exemption in the proposed rule to protect the confidential lawyer-client relationship and traditional state court regulation of the legal profession.

The proposed HUD rule would have included lawyers who help clients negotiate or renegotiate their residential mortgages under the definition of “loan originator,” or “third-party loan modification specialist,” thereby subjecting the lawyers to the law’s extensive registration and licensing requirements. After weighing the organized bar’s concerns, HUD determined that licensed attorneys will not be deemed to be engaging in the business of a “loan originator,” and hence will not be subject to the SAFE Act regulatory requirements, if they are providing legal services to their clients and are in compliance with all applicable state court ethical rules and standards.

In its analysis of the final rule, which was published in the June 30 Federal Register, HUD indicated that the proposed rule was changed because of concerns     The ABA scored another victory this summer when the Department of Housing and Urban Development (HUD) included a broad exemption for attorneys in a new rule implementing the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).

The action by HUD followed other lawyer exemptions adopted at the urging of the ABA and state and local bars during the past year as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Federal Trade Commission’s final Mortgage Assistance Relief Services (MARS) Rule.

The Dodd-Frank law includes a broad practice-of-law exclusion specifically stating that the new Consumer Financial Protection Bureau (CFPB) will have no supervisory or enforcement authority over lawyers engaged in the practice of law who are in an attorney-client relationship with consumer clients. The new HUD final rule is consistent with the Dodd-Frank exclusion but more closely tracks the attorney exemption in the FTC MARS Rule, which exempts the vast majority of practicing lawyers who help consumer clients renegotiate their mortgages to avoid foreclosure.

HUD included a broad exemption for attorneys in its final rule implementing the SAFE Act after the ABA and state bar associations in Florida, Missouri, New Hampshire, North Carolina and Oregon urged the department to expand a narrower lawyer exemption in the proposed rule to protect the confidential lawyer-client relationship and traditional state court regulation of the legal profession.

The proposed HUD rule would have included lawyers who help clients negotiate or renegotiate their residential mortgages under the definition of “loan originator,” or “third-party loan modification specialist,” thereby subjecting the lawyers to the law’s extensive registration and licensing requirements. After weighing the organized bar’s concerns, HUD determined that licensed attorneys will not be deemed to be engaging in the business of a “loan originator,” and hence will not be subject to the SAFE Act regulatory requirements, if they are providing legal services to their clients and are in compliance with all applicable state court ethical rules and standards.

In its analysis of the final rule, which was published in the June 30 Federal Register, HUD indicated that the proposed rule was changed because of concerns that construing “engaging in the business of a loan originator” to encompass activities that constitute the practice of law could have negative consequences.

In particular, the department was concerned that the proposed rule could have interfered with regulation of the practice of law by state supreme courts, undermined important aspects of the confidential attorney-client relationship, including the attorney-client privilege, and hindered consumers from being able to obtain legal representation in residential mortgage loan transactions, all of which would undermine the purposes of the SAFE Act.

The department deferred to the new CFPB, which assumed responsibility for enforcing the SAFE Act and numerous other federal consumer protection statutes in mid-July, for a determination of which individuals will be covered as “third-party loan modification specialists” when they help consumer clients to modify their existing mortgages.

ABA President Wm. T. (Bill) Robinson III applauded HUD’s action.

“Lawyers already are subject to extensive state court regulations that impose stringent duties of competency, diligence, confidentiality and undivided loyalty on them, and ensure that they provide the best possible legal representation for their clients,” Robinson said. “Creating a new overlapping federal layer of regulation on practicing lawyers is unnecessary, and the conflicting standards would ultimately hurt their consumer clients,” he added.

 

Advertisement

ABA Washington Letter

The ABA Washington Letter is a monthly publication produced by the Governmental Affairs Office to report and analyze congressional and executive branch action on legislative issues of interest to the ABA and the legal profession. The newsletter highlights ABA involvement in the federal legislative process and focuses on the association's legislative and governmental priorities and other issues on which the ABA has policy.

ABA Washington Letter Archive

Contact: Rhonda J. McMillion Editor, 202-662-1017

 

ABA Washington Summary 

The ABA Washington Summary is a daily online publication providing up-to-date information on congressional and executive branch activity with regard to legislative issues of interest to the organized bar. Sources include the Congressional Record and Federal Register. The contents of this publication do not necessarily represent the positions of the American Bar Association.

Current ABA Washington Summary

ABA Washington Summary Archive

Contact: Deanna Falcone Editor, 202-662-1016