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On March 18, a coalition of 25 Democratic state Attorneys General urged the CFPB not to delay the August 19, 2019 compliance date for any aspect of the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule (Rule) and warned that they would consider taking legal action if the Bureau does so. (CFPB’s Notice of Proposed Rulemaking, which announced the proposed delay in the effective date, was covered by InfoBytes here.) The AGs assert that the Bureau did not provide enough legal justification for delaying the underwriting provisions until November 2020 because the 2017 Rule already provided affected lenders ample time to comply. Moreover, the AGs emphasize that the Bureau cannot use the related proposal of future rescission of the underwriting requirements as a justification for the compliance delay; the delay “must be justified on its own merits.” As for the merits of the Bureau’s justification, among other things, the AGs reject the Bureau’s conclusion that “it should not assign the weight that it did in the 2017 [Rule] to ‘the interest of enacting protections for consumers as soon as possible,’” arguing that diminishing the weight assigned to consumer protection is in opposition to the Bureau’s statutory mandate. The AGs also raise concern about the ambiguity in the compliance date for the payment-related provisions of the Rule and stress that the August 19, 2019 date should stay in effect because “lenders will have had 21 months to prepare.” The AGs conclude that they “will closely examine whether to take action to address any unlawful action by CFPB” should the proposed delay be finalized.
On March 8, the CFPB and two payday loan trade groups filed a joint status report with the U.S. District Court for the Western District of Texas in the litigation over the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, the two payday loan trade groups initiated the suit against the Bureau in April 2018, asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedures Act. In June 2018 and November 2018, the court stayed the litigation and the compliance date of the Rule, after the Bureau’s announcement that it intended to issue a proposed rulemaking to reconsider parts of the Rule. In February 2019, the Bureau issued a proposal, which seeks to rescind certain provisions of the Rule related to the ability-to-repay underwriting standards and delay the compliance date of those affected provisions until August 2020. The proposal does not reconsider the payment-related provisions of the Rule, leaving the compliance date for those provisions at August 19, 2019. (Covered by InfoBytes here.)
In the joint status report, both parties agree that the court’s stay of compliance date and stay of litigation should remain with regard to the underwriting provisions until the Bureau concludes the rulemaking process. As for the payment-related provisions, the payday loan trade groups request the court maintain both the litigation stay and compliance stay of payment provisions until the Bureau completes the underwriting rulemaking process, because the Bureau acknowledged in the proposals that it intends to examine issues related to the payment provisions and “and if the Bureau determines that further action is warranted, the Bureau will commence a separate rulemaking initiative,” which may ultimately moot the litigation. Moreover, the trade groups believe lifting the stays would lead to “piecemeal and potentially wasteful litigation.”
The Bureau also does not seek a lift to the stay of the litigation or compliance date for the payment-related provisions, but for separate reasons. The Bureau argues that the stay of the litigation should be “more limited,” at least until the 5th Circuit issues a decision on the Bureau’s constitutionality in a pending action (covered by InfoBytes here). As for the compliance date stay for the payment-related provisions, the Bureau believes it is not an issue the court needs to decide at this time, but acknowledges that should it request the court lift the stay in the future, the trade groups and the Bureau would have an opportunity to address whether lifting the stay should be delayed to “allow companies to come into compliance with the payments provisions.”
In response to the joint status report, on March 19, the court entered an order continuing the stay of the litigation and the compliance date for both the Rule’s underwriting provisions and its payment-related provisions.
On March 12, Director of the CFPB, Kathy Kraninger, testified at a hearing held by the Senate Banking, Housing, and Urban Affairs Committee on the CFPB’s Semi-Annual Report to Congress. While Kraninger’s opening statement and question responses were similar to her comments made last week during a House Financial Services Committee hearing (detailed coverage here), notable highlights include:
- Fair Lending. Kraninger did not provide a status update on the Bureau’s pre-rulemaking activities as they relate to whether disparate impact is cognizable under ECOA, but emphasized that the Bureau is committed to the fair lending mission.
- Data Collection. In response to concerns over the Bureau’s history of expansive data collection, Kraninger noted that data collection is an especially important tool for rulemaking, but stated that going-forward she would ensure the Bureau only collects the information needed to carry out the Bureau’s mission, noting that the less personally identifiable information that is collected, the less that requires protection. She acknowledged the Bureau is reviewing the comments submitted in response to its fall 2018 data governance program report (covered by InfoBytes here) and stated the Bureau remains committed to reviewing the internal processes it has for collecting and using data.
- Military Lending Act (MLA). Kraninger stated that she disagrees with the Democratic Senator’s broad interpretation of Section 1024(b)(1)(C) of the Dodd-Frank Act allowing for the Bureau to examine for compliance with the MLA because that interpretation would permit the Bureau to examine for anything that is a “risk to consumers,” including things like safety and soundness, which is not currently under the Bureau’s purview. While she acknowledged that the Bureau has the direct authority to enforce the MLA, she repeatedly rejected the notion that this would also give the Bureau the authority to supervise for the MLA, as Dodd-Frank separates the Bureau’s enforcement and supervision powers.
- Payday Rule. Kraninger repeatedly emphasized that the reconsideration of the underwriting standards in the Payday Rule was to determine if the legal and factual basis used to justify certain practices as unfair and abusive was “robust” enough. She acknowledged that the Bureau will be reviewing all the comments to the proposal and that the evidence used for the original Rule will be part of the record for the reconsideration.
- GSE Patch. In response to questions regarding the 2021 expiration of the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income ratio exception for mortgages backed by Fannie Mae and Freddie Mac (GSEs), Kraninger acknowledged the “non-QM” market hasn’t materialized over the last few years, as was originally anticipated. However, Kraninger was reluctant to provide any further details, noting that she would not be making any “dramatic changes” to the mortgage market. Additionally, she acknowledged that the GSE patch has the potential to expire at the end of the conservatorship as well.
- CFPB Structure. Kraninger did not specify whether she believes the Bureau should be led by a board, rather than a single director, or whether the Bureau should be under appropriations. Specifically Kraninger stated that she would “welcome any changes Congress made that would increase the accountability and transparency of the Bureau,” and would “dutifully carry out” legislation that would place the Bureau under appropriations if the President signed it.
- Student Lending. Kraninger stated that the Bureau intends to re-engage with the Department of Education on a Memorandum of Understanding (MOU) to assist with complaint and information sharing once a new Student Loan Ombudsmen has been hired. The MOUs were previously terminated by the Department in August 2018 (covered by Infobytes here).
On February 20, the CFPB released the Small Entity Compliance Guide covering the payment-related requirements of the Payday, Vehicle Title, and High-Cost Installment Lending Rule, which, among other things, prohibits payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals. (Detailed coverage on the Rule’s payment provisions available here.)
Notwithstanding the Bureau’s recently issued proposed rulemakings (covered by InfoBytes here), which, if finalized, would rescind certain provisions of the Rule related to underwriting standards and seek to delay the Rule’s compliance date for the underwriting provisions until August 2020, the payment-provisions will take effect August 19, 2019.
On February 11, the OCC released a statement from Comptroller of the Currency Joseph Otting supporting the CFPB’s proposed rule rescinding certain requirements relating to underwriting standards for short-term small-dollar loans. (Covered by InfoBytes here.) Calling the proposal “important and courageous,” Otting praised the Bureau, noting that it was “[t]he shrinking supply and steady demand” that “drove up prices and promoted much less favorable terms.” He continued to state that a framework of rules that allows responsible lenders to compete in the market will make the market “work better for everyone.”
As previously covered by InfoBytes, in May 2018, the OCC released a Bulletin encouraging banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles.
On February 6, the CFPB released two notices of proposed rulemaking (NPRM) related to certain payday lending requirements under the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). As previously covered by InfoBytes, last October the Bureau announced plans to reconsider the Rule’s mandatory underwriting requirements and address the Rule’s compliance date.
The first NPRM proposed will rescind certain provisions of the Rule related to underwriting standards for payday loans and related products scheduled to take effect later this year. Specifically, the CFPB proposes to rescind the portion of the Rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay. The proposed changes would also rescind prescribed mandatory underwriting requirements for making the ability-to-repay determination, provisions exempting certain loans from the mandatory underwriting requirements, as well as related definitions, reporting, and recordkeeping requirements. The CFPB explains that it now initially determines that the evidence underlying the identification of the unfair and abusive practice in the Rule “is not sufficiently robust and reliable to support that determination, in light of the impact those provisions will have on the market for covered short-term and longer-term balloon-payment loans, and the ability of consumers to obtain such loans, among other things.” If finalized, the proposals represent a significant change to the Rule as finalized during the tenure of former Bureau Director Richard Cordray in October 2017. (See Buckley Special Alert for more detailed coverage on the Rule.) Comments will be accepted for 90 days following publication in the Federal Register.
The second NPRM seeks to delay the Rule’s compliance date for mandatory underwriting provisions from August 19, 2019 to August 19, 2020. Notably, the Bureau states in a press release announcing the NPRMs that the proposal to delay the effective date does not extend to the Rule’s provisions governing payments, which “prohibit payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals.” Lenders also will still be required to provide written notice to consumers both before the first attempt to withdraw payment from their accounts, as well as prior to subsequent attempts involving different dates, amounts, or payment channels. These provisions are not under reconsideration and will take effect August 19, 2019. Comments will be accepted for 30 days following publication in the Federal Register.
On November 14, the FDIC issued a request for information (RFI) seeking public comment on ways it can encourage FDIC-supervised financial institutions to offer “responsible, prudently underwritten small-dollar credit products that are economically viable and address the credit needs of bank customers.” In the RFI’s release, FDIC Chairman Jelena McWilliams pointed to studies showing that “[c]onsumers benefit when small-dollar credit products are available from banks” and requested “the public to use the RFI process to tell [the FDIC] how to ensure that consumers can obtain small dollar credit from banking institutions in a responsible manner.” The RFI seeks information related to the “full spectrum of issues” related to banks offering small-dollar credit, including regulatory and non-regulatory obstacles for banks, as well as actions the FDIC could take to assist banks in serving the small-dollar market. In addition to general feedback, the RFI includes a list of suggested topics and questions for commenters to address. Comments will be due 60 days after publication in the Federal Register.
Recently, the OCC and the CFPB have also made efforts to encourage banks to meet the small-dollar credit needs of consumers. In May, the OCC issued Bulletin 2018-14 encouraging banks to offer responsible short-term, small-dollar installment loans with typical maturities between two and 12 months (covered by InfoBytes here). In addition to applauding the OCC’s Bulletin, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans in January 2019 (covered by InfoBytes here).
On November 6, the U.S. District Court for the Western District of Texas granted two payday loan trade groups’ request to reconsider the court’s June decision to deny a stay of the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). The court styed the compliance date until further order of the court. The court previously (twice) denied requests to stay the compliance date (covered by InfoBytes here and here). However, the court reconsidered its decision after an October 26 status update, in which the Bureau informed the court of its intention to issue a notice of proposed rulemaking in January 2019 to reconsider parts of the Rule and the compliance date (covered by InfoBytes here).
As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit against the Bureau in April asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedure Act.
On October 26, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans (the Rule) in January 2019. The Bureau does not intend to reconsider the payment provisions of the Rule, noting that the ability-to-repay provisions “have much greater consequences for both consumers and industry than the payment provisions.” Under the current Rule, it is an unfair and abusive practice for a lender to make a covered short-term loan or a covered longer-term balloon payment loan without reasonably determining that the consumer has the ability to repay the loan (see the Buckley Sandler Special Alert for more detailed coverage on the Rule). The Bureau also intends to address the compliance date for the Rule, which is currently set at August 19, 2019.
On August 7, the U.S. District Court for the Western District of Texas denied a request by two payday loan trade groups to reconsider its June decision denying a stay of the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule) until 445 days after final judgment in the pending litigation. As previously covered by InfoBytes, the court granted the trade groups’ and the CFPB’s joint request to stay the lawsuit—which asks the court to set aside the Rule— because of the Bureau’s plans to reconsider the Rule, but the court denied, without explanation, the request to stay the compliance date. In denying the reconsideration request, the court acknowledged considering, among other things, the trade groups’ motion and the CFPB’s response, which supported the motion but again, did not provide a substantive justification for the denial.
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- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium