InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB releases regulatory agenda
The Office of Information and Regulatory Affairs recently released the CFPB’s spring 2023 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:
- Overdraft fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges.
- FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. In January, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.” (Covered by InfoBytes here.)
- Insufficient funds fees. The Bureau is considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
- Amendments to FIRREA concerning automated valuation models. On June 1, the Bureau issued a joint notice of proposed rulemaking (NPRM) with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations to implement quality control standards mandated by the Dodd-Frank Act concerning automated valuation models used by mortgage originators and secondary market issuers. (Covered by InfoBytes here.) Previously, the Bureau released a Small Business Regulatory Enforcement Fairness Act (SBREFA) outline and report in February and May 2022 respectively. (Covered by InfoBytes here.)
- Section 1033 rulemaking. Section 1033 of Dodd-Frank provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the SBREFA and the issuance of a final report examining the impact of the Bureau’s proposals to address consumers’ personal financial data rights. (Covered by InfoBytes here.) Proposed rulemaking may be issued in October.
- Property Assessed Clean Energy (PACE) financing. The Bureau issued an NPRM last month to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The proposed effective date is at least one year after the final rule is published in the Federal Register (“but no earlier than the October 1 which follows by at least six months Federal Register publication”), with the possibility of a further extension to ensure compliance with a TILA timing requirement.
- Supervision of Larger Participants in Consumer Payment Markets. The Bureau is considering whether to engage in pre-rulemaking activity next month to define larger participants in consumer payment markets and further the scope of the agency’s nonbank supervision program.
- Nonbank registration. The Bureau announced its intention to identify repeat financial law offenders by establishing a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) The Bureau anticipates issuing a final rule later this year.
- Terms and conditions registry for supervised nonbanks. At the beginning of the year, the Bureau issued an NPRM that would create a public registry of terms and conditions used in non-negotiable, “take it or leave it” nonbank form contracts that “claim to waive or limit consumer rights and protections.” Under the proposal, supervised nonbank companies would be required to report annually to the Bureau on their use of standard-form contract terms that “seek to waive consumer rights or other legal protections or limit the ability of consumers to enforce or exercise their rights” and would appear in a publicly accessible registry. (Covered by InfoBytes here.) The Bureau anticipates issuing a final rule later this year.
- Credit card penalty fees. The Bureau issued an NPRM in February to solicit public feedback on proposed changes to credit card late fees and late payments and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. A final rule may be issued later this year.
- LIBOR transition. In April, the Bureau issued an interim final rule, amending Regulation Z, which implements TILA, to update various provisions related to the LIBOR transition. Effective May 15, the interim final rule further addresses LIBOR’s sunset on June 30, by incorporating references to the SOFR-based replacement—the Fed-selected benchmark replacement for the 12-month LIBOR index—into Regulation Z. (Covered by InfoBytes here.)
CFPB releases regulatory agenda
Recently, the Office of Information and Regulatory Affairs released the CFPB’s fall 2022 regulatory agenda. Key rulemaking initiatives that the agency expects to initiate or continue include:
- Overdraft and NSF fees. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation Z with respect to special rules for determining whether overdraft fees are considered finance charges. According to the Bureau, the rules, which were created when Regulation Z was adopted in 1969, have remained largely unchanged despite the fact that the nature of overdraft services has significantly changed over the years. The Bureau is also considering whether to engage in pre-rulemaking activity in November regarding non-sufficient fund (NSF) fees. The Bureau commented that while NSF fees have been a significant source of fee revenue for depository institutions, recently some institutions have voluntarily stopped charging such fees.
- FCRA rulemaking. The Bureau is considering whether to engage in pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. As previously covered by InfoBytes, on January 3, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). CFPB Director Rohit Chopra noted that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.”
- Section 1033 rulemaking. Section 1033 of Dodd-Frank provides that covered entities, such as banks, must make available to consumers, upon request, transaction data and other information concerning consumer financial products or services that the consumer obtains from the covered entity. Over the past several years, the Bureau has engaged in a series of rulemaking steps to prescribe standards for this requirement, including the release of a 71-page outline of proposals and alternatives in advance of convening a panel under the Small Business Regulatory Enforcement Fairness Act (SBREFA). The outline presents items under consideration that “would specify rules requiring certain covered persons that are data providers to make consumer financial information available to a consumer directly and to those third parties the consumer authorizes to access such information on the consumer’s behalf, such as a data aggregator or data recipient (authorized third parties).” (Covered by InfoBytes here.) The Bureau anticipates issuing a SBREFA report in February.
- Amendments to FIRREA concerning automated valuation models. The Bureau is participating in interagency rulemaking with the Fed, OCC, FDIC, NCUA, and FHFA to develop regulations to implement the amendments made by Dodd-Frank to FIRREA concerning appraisal automated valuation models (AVMs). The FIRREA amendments require implementing regulations for quality control standards for AVMs. The Bureau released a SBREFA outline and report in February and May 2022 respectively (covered by InfoBytes here), and estimates that the agencies will issue a notice of proposed rulemaking (NPRM) in March.
- Property Assessed Clean Energy (PACE) financing. The Bureau issued an advance notice of proposed rulemaking (ANPRM) in March 2019 to extend TILA’s ability-to-repay requirements to PACE transactions. (Covered by InfoBytes here.) The Bureau is working to develop a proposed rule to implement Economic Growth, Regulatory Relief, and Consumer Protection Act Section 307 in April.
- Nonbank registration. The Bureau issued an NPRM in December to enhance market monitoring and risk-based supervision efforts by including all final public written orders and judgments (including any consent and stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of certain consumer protection laws related to unfair, deceptive, or abusive acts or practices in a database of enforcement actions taken against certain nonbank covered entities. (Covered by InfoBytes here.) In a separate agenda item, the Bureau states that the NPRM would also require supervised nonbanks to register with the Bureau and provide information about their use of certain terms and conditions in standard-form contracts. The Bureau proposes “to collect information on standard terms used in contracts that are not subject to negotiating or that are not prominently advertised in marketing.”
- Credit card penalty fees. The Bureau issued an ANPRM last June to solicit information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. (Covered by InfoBytes here.) Under the CARD Act rules inherited by the Bureau from the Fed, credit card late fees must be “reasonable and proportional” to the costs incurred by the issuer as a result of a late payment. Calling the current credit card late fees “excessive,” the Bureau stated it intends to review the “immunity provision” to understand how banks that rely on this safe harbor set their fees and to examine whether banks are escaping enforcement scrutiny “if they set fees at a particular level, even if the fees were not necessary to deter a late payment and generated excess profits.” The Bureau is considering comments received on the ANPRM as it develops an NPRM that may be released this month.
- Small business rulemaking. Section 1071 of Dodd-Frank amended ECOA to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses, and directed the Bureau to promulgate rules for this reporting. An NPRM was issued in August 2021 (covered by InfoBytes here). The Bureau anticipates issuing a final rule later this month.
CFPB releases regulatory agenda
On January 31, the CFPB released its semiannual regulatory agenda in the Federal Register, as part of the Fall 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions. According to the CFPB, it “reasonably anticipates having the regulatory matters identified below under consideration during the period from November 1, 2021 to October 31, 2022.” The next agenda will be published in Spring 2022, which will update the recently released agenda through Spring 2023. Among other things, the agenda noted that the Bureau made “significant progress” on the implementation of Section 1071 of the Dodd-Frank Act, which covers banks’ collection, reporting, and disclosure of information on credit applications made by women-owned, minority-owned, and small businesses. Other highlights of the agenda include the Bureau’s: (i) continued collaboration with other federal agencies on regulations for automated valuation models under the FIRREA amendments to Dodd-Frank; (ii) expectation to issue a final rule on the transition away from the LIBOR index, which aims to ensure that loans tied to LIBOR are transitioned “in an orderly, transparent, and fair manner”; (iii) assessment of a rule implementing HMDA; (iv) work on regulations for PACE financing and its “continu[ed] engagement with stakeholders and collect information” from a Advance Notice of Proposed Rulemaking, issued in March 2019 (covered by InfoBytes here); and (v) continued monitoring of consumer financial product markets and creation of working groups to focus on specific markets for potential future rulemakings.
FFIEC proposes amendments to temporary waiver proceedings
On January 13, the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) published a request for comments on proposed amendments to provide greater transparency and clarity to the existing rules of practice and procedure governing temporary waiver proceedings. The existing temporary waiver proceedings, which were promulgated in 1992 under FIRREA, allow temporary waivers to be granted if a state appraiser regulatory agency makes a written determination that a scarcity of state-certified or licensed appraisers in a state or geographical area is causing significant delays in the performance of real estate appraisals utilized in connection with federally related transactions. Temporary waivers terminate once the ASC determines that the significant delays have been eliminated.
The FFIEC’s notice of proposed rulemaking (NPRM) seeks “to clarify the procedural differences in processing a Request for Temporary Waiver accompanied by a written determination as compared to a Petition requesting the ASC exercise its discretion to initiate a temporary waiver proceeding.” Among other things, the NPRM would allow the ASC to draw a clear distinction between: (i) a state appraiser regulatory agency’s request that is accompanied by a written determination (referred to in the NPRM as a “Request for Temporary Waiver”); and (ii) information received from other persons or entities, which could include a state appraiser regulatory agency (referred to as a “Petition”). As presented in the NPRM’s accompanying flowchart, the procedures will vary depending on whether the ASC has received a Request for Temporary Waiver or a Petition requesting the initiation of a temporary waiver proceeding. Comments on the NPRM must be received by March 14.
CFPB publishes fall 2021 rulemaking agenda
On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.
Key rulemaking initiatives include:
- Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
- Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
- Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
- Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
- Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”
Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.
National bank to pay $37 million for alleged foreign exchange violations
On September 27, a proposed settlement was filed in the U.S. District Court for the Southern District of New York resolving allegations that a national bank (defendant) allegedly defrauded nearly 800 commercial customers by charging higher prices on foreign exchange (FX) transactions despite having fixed-pricing agreements. According to the complaint, from 2010 to 2017, the defendant allegedly defrauded customers who utilized its FX services, which violated the mail fraud, wire fraud, and bank fraud statutes of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), by: (i) falsely representing that the defendant would charge fixed FX spreads or sales margins on the customers’ FX transactions; (ii) financially incentivizing the FX sales specialists to overcharge while failing to certify that FX sales specialists comply with fixed-pricing agreements; and (iii) systematically charging “higher [FX] spreads or sales margins than [the bank] represented it would charge and/or was charging in fixed-pricing agreements or otherwise, while concealing the overcharges from the Customers.” Under the terms of the proposed settlement, the defendant must pay nearly $35.3 million plus interest, while an additional $2 million payment plus interest is subject to forfeiture to the U.S. The proposed settlement notes that the defendant paid $35.3 million in restitution to commercial customers who utilized the bank’s FX services. According to the order, the whistleblower who filed a declaration in 2016 with the U.S. under the Financial Institutions Anti-Fraud Enforcement Act will receive $1.6 million of the civil penalty. The DOJ sent a letter informing the court “that the United States and [the bank] have entered into a proposed Stipulation and Order of Settlement and Dismissal (the ‘Settlement’) resolving this action.”
CFPB releases fall 2020 rulemaking agenda
On December 11, the CFPB released its fall 2020 rulemaking agenda. According to a Bureau announcement, the information details the regulatory matters that the Bureau “expect[s] to focus on” between November 2020 and November 2021. The announcement notes that the Bureau will also continue to monitor the need for further actions related to the ongoing Covid-19 emergency. In addition to the rulemaking activities already completed by the Bureau this fall, the agenda highlights other regulatory activities planned, including:
- Debt Collection. The Bureau notes that it expects to issue a final rule in December 2020 addressing, among other things, disclosures related to validation notices and time-barred debt (proposal covered by a Buckley Special Alert here).
- LIBOR Transition. The Bureau notes that it anticipates publishing the final rulemaking (proposal covered by InfoBytes here) on the LIBOR transition later than the original January 2021 target identified in the Unified Agenda, due to the November 30 announcement by UK regulatory authorities that they are considering extending the availability of US$ LIBOR for legacy loan contracts until June 2023, instead of the end of 2021.
- FIRREA. The Bureau notes that, together with the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA, it will continue to develop a proposed rule to implement the automated valuation model (AVM) amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals.
- Mortgage Servicing. The Bureau notes that it intends to issue an NPRM in spring 2021 to consider amendments to the Bureau’s mortgage servicing rules to address actions required of servicers working with borrowers affected by natural disasters or other emergencies. The Bureau notes that comments to the interim final rule issued in June 2020, amending aspects of the mortgage servicing rules to address the exigencies of Covid-19 (covered by InfoBytes here), suggest that the rules may need additional updates to address natural disasters or other emergencies.
- HMDA. The Bureau states that two rulemakings are planned, including (i) a proposed rule that follows up on a May 2019 advanced notice of proposed rulemaking, which sought information on the costs and benefits of reporting certain data points under HMDA and coverage of certain business or commercial purpose loans (covered by InfoBytes here); and (ii) a proposed rule addressing the public disclosure of HMDA data.
DOJ, SEC settle with national bank for $3 billion over sales-compensation practices
On February 21, the DOJ and SEC announced that one of the nation’s largest banks agreed to a settlement including a $3 billion monetary penalty to resolve investigations regarding their incentive compensation sales program. (See the DOJ’s Statement of Facts here). As previously covered by InfoBytes, the OCC also recently issued charges against five of the bank’s former executives, and announced settlements with the former CEO and operating committee members for allegedly failing to adequately ensure that the bank’s sales incentive compensation plans operated according to policy.
The SEC alleged in its Cease and Desist order that the bank violated the antifraud provisions of the Securities Exchange Act of 1934. The SEC’s press release states that in addition to agreeing to cease and desist from committing any future violations of the antifraud provisions, the bank agreed to a civil penalty of $500 million, which the SEC will return to harmed investors.
The bank also settled the DOJ’s civil claims under the Financial Institutions Reform, Recovery and Enforcement Act. According to the settlement, the bank accepted responsibility, cooperated in the resulting investigations, and has taken “extensive remedial measures.” In addition, the DOJ’s press release states that it entered into a three-year deferred prosecution agreement with the bank regarding the bank’s sales incentive compensation practices.
9th Circuit affirms no jurisdiction without exhaustion of administrative remedies
On December 27, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a TILA case brought by a consumer against his mortgage lender, citing lack of subject matter jurisdiction under the provisions of FIRREA that require claims involving a bank that is in receivership to be presented to the FDIC before the borrower files suit. In 2009 the consumer filed an adversary proceeding in bankruptcy court against his lender for rescission of his mortgage loan under TILA. The consumer claimed that the lender’s notice of right to cancel was defective when the loan was signed, resulting in an extended rescission period under TILA, but his suit was dismissed for lack of jurisdiction. Once again, in 2012, the district court dismissed the consumer’s TILA suit after finding that the consumer had not exhausted his administrative remedies with the FDIC before filing suit.
On appeal, the three-judge panel rejected the consumer’s claim that his lender was not placed into receivership until after his loan was sold, and therefore he did not have to exhaust his administrative remedies before filing suit. The panel subscribed to the Fourth Circuit’s interpretation of the exhaustion requirement, stating that “even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first.” According to the opinion, the FIRREA requirement that the consumer exhaust his remedies with the FDIC applied to this action because the panel determined that (i) the consumer’s claim was “susceptible of resolution under the FIRREA claims process”; (ii) the consumer’s claim was related to an act or omission of the lender; and (iii) the FDIC, which “was not required to have possessed the loan before determining a claim” had been appointed as receiver for that lender, stripping the appellate court of subject matter jurisdiction until after the FDIC determined his claim.
DOJ settles with multinational corporation for $1.5 billion over RMBS
On April 12, the DOJ announced that a multinational corporation will pay $1.5 billion in a settlement resolving claims brought under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) that a financial services subsidiary of the corporation misrepresented the quality of loans it originated in connection with the marketing and sale of residential mortgage-backed securities (RMBS). According to the DOJ, between 2005 and 2007, the majority of the mortgage loans sold by the subsidiary for inclusion in RMBS did not comply with the quality representations made about the loans. Specifically, the loan analysts allegedly approved mortgage loans that did not meet criteria outlined in the company’s underwriting guidelines, as they would receive additional compensation based on the number of loans they approved. The DOJ asserts that there were inadequate resources and authority for the subsidiary’s quality control department, resulting in deficiencies in risk management and fraud controls. Additionally, if an investment bank were to reject a loan due to defects in the loan file, the DOJ alleges the subsidiary would attempt to find a new purchaser, without disclosing the previous rejection or identifying the alleged defects. The corporation does not admit to any liability or wrongdoing, but agreed to pay a $1.5 billion civil money penalty to resolve the matter.