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Financial Services Law Insights and Observations

Chopra highlights APOR in call for resilient and durable rules

Federal Issues CFPB Mortgages Consumer Finance Consumer Lending Interest Rate

Federal Issues

On May 17, CFPB Director Rohit Chopra announced that the agency is currently reviewing several of its rules and guidance documents in an effort to eliminate unnecessary complexities and create “more durable rules that don’t over-rely on single entities.” Chopra flagged issues related to the federal mortgage rules as an example of unnecessarily complex policies with a penchant for accommodating “dominant industry incumbents.” Last month, the Bureau announced a revised version of its methodology for calculating the average prime offer rates (APORs), which highlighted broader weaknesses resulting from single points of failure and a reliance on overly complicated benchmarks. As previously covered by InfoBytes, the methodology statement was revised to address the imminent unavailability of certain data that the Bureau previously relied on to calculate APORs, including changes made by Freddie Mac to its Primary Mortgage Market Survey used to calculate APORs for three types of loans. Noting that the Bureau has had other challenges relying on a single entity for calculating the APOR benchmark over the last decade, Chopra commented that “[n]o consumer protection rule should be designed so that its important protections are threatened by single points of failure or single sources.” He added that the revised APOR methodology further “highlighted the risks of relying on complicated reference rates that must be manually constructed rather than potentially more robust market-based measures that stand on their own.”