The First 100 Days and Beyond: ILSA Now Administered by the Federal 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, focuses extensively on banking and securities. Title X of the Act (codified at 12 U.S.C.A. Section 5511) establishes the Consumer Financial Protection Bureau (CFPB or the "bureau") and grants it extensive authority over banking and securities. In addition, Title X also consolidates under the bureau's authority administration of a number of consumer-oriented financial and real estate laws as of July 21, 2011, including the Interstate Land Sales Full Disclosure Act (ILSA), 15 U.S.C. 1701 et seq. For the past 40 years, ILSA had been administered by the U.S. Department of Housing and Urban Development (HUD). This alert is a continuation of the July 21, 2011 Real Estate alert, Crossing the Rubicon: ILSA Now Administered by the Federal Consumer Financial Protection Bureau, which described the then upcoming transition from HUD to CFPB.

The daily operation that is most visible to developers is the CFPB staff review of new or amended registrations and annual reports of activity for lot sales in new subdivisions and communities, and some vertical yet-to-be-built condominiums. The relatively prompt pace of review of the principal staff member, Mr. William Thomas, has remained constant. Mr. Thomas, who was the main registration and exemption examiner for the past few years at HUD while ILSA was administered by HUD, transferred along with ILSA to the CFPB and holds a similar position there. Dennis Weipert, who focuses on enforcement and policy issues, also transitioned from HUD to the new agency. So, the two main persons who administered the daily activities of the ILSA program over the past few years at HUD continue to do so for the CFPB.

Standards for Registration Continue to Tighten

The standards for disclosure in the property report and the additional information and documentation section continue to tighten. Answers that were accepted by HUD for years are now routinely found lacking. One who is not experienced with recent standards can expect 20 to 30 punch list items and sometimes more. Some are straightforward to resolve but others are not. For example, in situations where unaudited financial statements are permitted by the regulations, for many years such financial statements would be filed without a signed certification by the preparer. However, starting a few years ago, a certification is required that the unaudited statements meet the standards of Generally Accepted Accounting Principles (GAAP) of the Financial Accounting Standards Board (FASB), a nonprofit organization of the accounting profession created to promulgate GAAP rules.

As a second example, a provision in the regulations under which the agency may require any additional information and documentation for insertion into property report disclosures not expressly required by the regulations, but may be required in the public interest and for the protection of purchasers, historically was sparingly invoked by HUD examiners. Discretion of the examiner now reaches further than perhaps ever before. There are differing opinions on whether the information thus obtained is beneficial or useless to prospective purchasers. The main shortcomings of this approach, when additional disclosure requirements are routinely mandated, is the element of surprise, and the lack of opportunity to comment prior to issuance and to have comments fairly considered free of the investment of the examiner in the deficiency. Notice and opportunity to comment and be fairly heard is the core of the regulatory rulemaking process or published policy pronouncements. When examination becomes an unpredictable black box, erosion of sound administrative procedure and fundamental fairness results.

It is difficult for the developer trying to register or amend and also for the CFPB examiner who has a tough job to be sure. With wide discretion on issues of disclosure and documentation in registration, the examiner is left to pore over the statute and regulations and accumulate a punch list of items built up over time. The list tends to reach for more detailed disclosures – not all of which are either expressly called for in the regulations or particularly meaningful to a prospective purchaser. Nonetheless, the accumulated discretionary punch list contributes to a substantially lengthened registration cycle costly in time and dollars to developers who are already working hard to comply.

An example of a new deficiency is one recently cited seeking a copy...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT