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CFPB, State Regulators Announce Supervision Framework
On May 21, the CFPB and the CSBS released an agreement to coordinate supervision of entities subject to concurrent jurisdiction of the CFPB and one or more state regulators. The Supervisory Coordination Framework is a nonbinding guide that builds off of the parties' 2011 Memorandum of Understanding, which has since been signed by 59 state regulators. The Framework establishes processes for information sharing, consulting on corrective actions, and coordinating exam schedules and supervisory plans. The Framework also includes a general process for resolving disputes between the CFPB and state regulators, and directs the parties to develop additional processes and procedures to ensure standardization and consistency in implementing the Framework.
CFPB Updates Status of Standard for Assessing Diversity at Supervised Institutions
On March 29, the CFPB’s Office of Minority and Women Inclusion (OWMI) published its annual report about the CFPB’s diversity and inclusion efforts from January 1, 2012 until December 31, 2012. The Dodd-Frank Act created the CFPB OWMI and similar offices at other federal financial regulatory agencies and tasked each office with advising its agency head on the impact of the policies and regulations of the agency on minority-owned and women-owned businesses, and developing standards for (i) equal employment opportunity and the racial, ethnic, and gender diversity of the agency workforce and senior management; (ii) increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency; and (iii) assessing the diversity policies and practices of entities regulated by the agency. With regard to regulated entities, the report notes that in February 2013 the CFPB entered into a Memorandum of Understanding with the Equal Employment Opportunity Commission to access employment demographic survey data, which will provide a starting point to analyze the composition of regulated entities. The CFPB also reports that the various OWMIs are developing a common standard for assessing the diversity policies and practices of regulated entities and plan to publish draft standards for comment sometime in 2013.
CFPB Releases First MOU with Tribal Government
On February 12, the CFPB released a memorandum of understanding (MOU) it entered into last month with the Navajo Nation Department of Justice, pursuant to which the parties will share information. The MOU provides for confidential treatment and protection from FOIA disclosure of Navajo Nation documents and information provided to the CFPB, and establishes a framework pursuant to which the Navajo Nation can seek information from the CFPB. Notably, nearly a year ago, in remarks to state attorneys general, CFPB Director Richard Cordray stated the CFPB's intent to focus on payday lenders associated with Native American tribes. The MOU could facilitate the CFPB's efforts to pursue such lenders.
Special Alert: CFPB and DOJ Announce MOU to Coordinate Fair Lending Enforcement Efforts; CFPB Issues First Annual Report to Congress on Fair Lending Activities
On December 6, the Consumer Financial Protection Bureau (CFPB or Bureau) and the U.S. Department of Justice (DOJ) announced a Memorandum of Understanding (MOU) to coordinate enforcement of the federal fair lending laws, including the Equal Credit Opportunity Act (ECOA). Simultaneously, the CFPB issued its first annual Fair Lending Report to Congress as required by the Dodd-Frank Act, which describes the Bureau’s efforts to build its Office of Fair Lending and Equal Opportunity and reviews its fair lending accomplishments. Together, these initiatives demonstrate that the CFPB and DOJ are continuing to work together closely to aggressively enforce the federal fair lending laws.
Memorandum of Understanding Regarding Fair Lending Coordination
The new MOU supplements an existing Information Sharing Agreement Regarding Fair Lending Investigations among the DOJ, the U.S. Department of Housing and Urban Development, and the Federal Trade Commission, which allows these fair lending enforcement agencies to share confidential information related to fair lending investigations, screening procedures, and investigative techniques. It also follows a general cooperation MOU that the DOJ and CFPB entered into earlier this year.
The new MOU focuses on information sharing and referral of matters alleging ECOA violations, but also governs the agencies’ referral processes for other fair lending-related laws and joint fair lending investigations.
Referral of ECOA Violations to DOJ: The MOU explains the circumstances under which the CFPB will refer potential ECOA violations to the DOJ for further investigation or prosecution. Consistent with the established practice of the prudential federal bank regulators, the MOU requires the CFPB to refer to the DOJ all matters where it has “reason to believe” that one or more creditors has engaged in a pattern or practice of lending discrimination. The CFPB may also refer to DOJ any violation of Section 701(a) of ECOA, including a recommendation that a civil action be commenced if the CFPB cannot obtain compliance from the financial institution.
Following referral, the DOJ has 60 days to determine whether to proceed with its own investigation. Within that period, the CFPB may not unilaterally commence its own action with regard to the referred violation(s). Even if exigent circumstances arise during the 60-day review period, the CFPB must first consult with the DOJ before taking independent action.
The CFPB may also refer to the DOJ possible violations of fair lending-related laws for which the CFPB has no statutory examination or enforcement authority, but for which the DOJ possesses enforcement authority, including the Fair Housing Act and the Servicemembers Civil Relief Act. Despite its lack of statutory authority to enforce these laws, the CFPB’s Supervision & Examination Manual provides resources to identify such potential violations for purposes of referrals to another federal agency.
Joint Investigations: With regard to joint investigations, the MOU provides only that “[w]hen appropriate, the DOJ and the CFPB will seek to collaborate on investigations, and conduct joint investigations of entities allowing the Agencies to leverage resources and expertise.” The agreement calls for quarterly meetings to discuss investigative activity, but allows each agency to retain “independent authority to proceed in the manner that it determines is appropriate.”
Information Sharing: The MOU describes how the parties have agreed to designate, share, use, and protect as non-public, certain information related to investigations of potential ECOA violations, including confidential supervisory information collected by the CFPB under its supervision and examination authority. The MOU allows for additional case- or investigation-specific information sharing agreements as appropriate, based on a form agreement provided as an attachment to the MOU. Section 7 of the form agreement indicates that “sharing of any confidential information [between the CFPB and DOJ] under this Agreement does not constitute a waiver of, or otherwise affect, any privilege any agency or person may claim with respect to such information under federal law.” This provision appears to mirror the treatment of confidential information under 12 U.S.C. § 1828(x) that applies to the prudential bank regulatory agencies.
CFPB’s First Annual Fair Lending Report to Congress
The First Annual Fair Lending Report of the Consumer Financial Protection Bureau describes the CFPB’s efforts to build its Office of Fair Lending and Equal Opportunity and reviews that office’s accomplishments from July 21, 2011 through July 20, 2012. The CFPB includes among those accomplishments the issuance of “Bulletin 2012-04 on Discrimination in Lending” and the commencement of a number of non-public fair lending investigations, which are ongoing. The Report states that the Bureau continues to develop tools that allow it to identify areas of heightened fair lending risk and to promote efficiency in its supervisory and enforcement efforts. Earlier this year, in its strategic plan, the CFPB explained that it intends to base its fair lending-related performance on, among other indicators, the number of fair lending supervision activities opened during the fiscal year and the percentage of fair lending cases filed that were “successfully resolved” through litigation, settlement, or default judgment.
The Report states that federal regulators referred 12 ECOA-related matters to the DOJ from July 21, 2011 through December 31, 2011 and provides a summary of the most frequently cited Regulation B violations found by the federal regulators during examinations of financial institutions. The Report also provides a summary of a study and report by the CFPB to Congress on use of cohort default rates in private education lending, and provides a general status on rulemakings required by the Dodd-Frank Act. The CFPB describes the rulemaking to expand the scope of the data that must be collected and submitted under the Home Mortgage Disclosure Act (HMDA) as being in the “pre-rule stage,” and the Bureau has begun the planning process for new rules concerning data collection and reporting of small, minority- and women-owned business loan data by gathering information from stakeholders.
BuckleySandler LLP is a national leader in fair lending enforcement, litigation, and compliance. Attorneys in our Fair and Responsible Banking Team and CFPB Team defend institutions facing fair lending enforcement actions brought by the DOJ, CFPB and other federal agencies, and the firm regularly counsels an array of financial institutions seeking to comply with the full range of federal fair lending laws.
Federal Banking Regulators Issue Statement on Conversions of Troubled Banks
On November 26, the Federal Reserve Board, the FDIC, and the OCC, together with the CSBS, issued guidance on implementation of section 612 of the Dodd-Frank Act, which imposes restrictions on conversions of national banks and federal savings associations to state-chartered institutions and vice versa. As the Interagency Statement describes, section 612 generally prohibits such charter conversions while an institution is subject to either a formal enforcement order issued by its primary regulator involving a significant supervisory matter or to a memorandum of understanding entered into with its primary regulator involving a significant supervisory matter. The Statement (i) explains that federal and state agencies consider the prohibition to cover all formal enforcement actions by a federal or state agency, (ii) encourages institutions subject to the prohibition that are seeking conversion under one of the several exceptions to notify regulators prior to submitting a conversion application, and (iii) outlines the processes by which federal and state agencies will comply with the notification and information sharing requirements of section 612.
White House Requires Agencies to Implement Electronic Recordkeeping
On August 24, the Office of Management and Budget and the Archivist of the United States issued a directive that requires all executive offices and federal agencies to eliminate paper and implement electronic recordkeeping for all records, regardless of security classification. The directive, which was required by a November 2011 Presidential Memorandum that outlined an effort to reform federal records management policies and practices, seeks to improve agencies’ compliance with federal records management statutes and regulations. The directive states that by the end of 2013, each agency must develop a plan to achieve electronic management of all permanent electronic records by the end of 2019. By the end of 2016, all agencies must manage email records in an electronic system that supports records management and litigation requirements. The National Archives and Records Administration will revise transfer guidance for permanent electronic records, issue new email management guidance, and support research in applied technologies to facilitate electronic records management. The Archivist will facilitate the initiative by leading a group of federal entities and private sector leaders in information technology, legal counsel, and records management to solve electronic records management challenges.
Nevada Mortgage Regulator Clarifies Wholesale Lender Licensing Requirements
On August 20, the Nevada Division of Mortgage Lending issued a memorandum clarifying licensing requirements for wholesale lenders under the Nevada Mortgage Brokers and Mortgage Agents Act. The Act prohibits anyone from offering or providing mortgage-broker services—such as making mortgage loans or buying and selling mortgage notes—without first obtaining a license. The memorandum states that a wholesale lender must be licensed as a broker if (i) the wholesale lender closes and funds a mortgage in its own name as the lender of record, or (ii) buys a mortgage loan from a mortgage broker after closing. A wholesale lender need not be licensed if it only provides a funding source for a licensed or exempt mortgage broker to close and fund a loan as the lender of record. After closing, the lender of record may assign a closed or funded loan to the wholesale lender. The Division will allow until October 1, 2012 for wholesale lenders to apply for a license under this interpretation, and it will start enforcing the licensing requirement on January 1, 2013.
CFPB, Prudential Regulators Release Supervisory Coordination Memorandum
On June 4, the CFPB and the federal banking prudential regulators the Federal Reserve Board, the National Credit Union Administration, the Federal Deposit Insurance Corporation, and the Office of Comptroller of the Currency jointly released a Memorandum of Understanding (MOU) meant to facilitate coordination of supervisory activities. The Dodd-Frank Act grants the CFPB exclusive authority to examine insured depository institutions and insured credit unions with more than $10 billion of total assets (and their affiliates) for compliance with federal consumer financial laws. The prudential regulators retained supervisory authority for all other applicable laws for such institutions, and all supervisory responsibilities for institutions with $10 billion or less in total assets. The Dodd-Frank Act also requires the CFPB and the prudential regulators to share supervisory information and work to minimize regulatory burden by coordinating examinations. The recent MOU seeks to implement those statutory requirements by establishing guidelines for simultaneous examinations and a framework for sharing certain supervisory information. The MOU also sets forth, among other things, a process by which covered institutions can request separate examinations.
CFPB Seeks Complaints Regarding Auto and Installment Loans, Announces Complaint Sharing with FTC
On March 12, the CFPB announced that it launched a system to handle consumer complaints regarding auto loans and installment loans. The new complaint form also allows consumers to submit complaints regarding vehicle leases and personal lines of credit. While the system will accept all such complaints, the CFPB initially can handle only complaints with regard to consumer loans with large banks, those over $10 billion in total assets. Loans issued by small banks or nonbanks will be referred to the appropriate federal or state authority. After it has finalized a rule defining “larger participants” in these markets, the CFPB will be permitted to handle directly complaints regarding covered nonbanks.
On March 14, the CFPB announced on its blog that, pursuant to its Memorandum of Understanding with the FTC, the CFPB now is sharing consumer complaint information with the FTC through the FTC’s Consumer Sentinel system. Consumer Sentinel is an online database of consumer complaints maintained by the FTC that helps law enforcement track and respond to consumer complaints. Many state attorneys general, the U.S. Postal Inspection Service, and the FBI’s Internet Crime Complaint Center also access and provide data to the FTC’s Consumer Sentinel system.
CFPB Director Addresses State Attorneys General, Spotlight on Payday Lenders, Debt Collectors, and Servicing Rules
The National Association of Attorneys General (NAAG) met this week in Washington, DC. Among the topics covered at the annual meeting was the ongoing and future coordination between federal and state law enforcement with regard to financial services. CFPB Director Cordray, a former state attorney general, noted that NAAG and the CFPB already have several working groups organized to address payday loans, foreclosure scams, auto loans, and debt collection. These efforts will be supported through a formal Memorandum of Understanding that is expected to be finalized soon. In his remarks and in follow up questioning, Director Cordray specifically addressed enforcement and supervision with regard to payday lenders and debt collectors. It was reported that Director Cordray indicated that the CFPB and the FTC are “zoning in” on issues related to payday lenders associated with Native American tribes. Regarding debt collectors, the Director stated that aggressive enforcement by the FTC and states is not enough, and that the CPFB would like federal and state regulators and enforcement agencies to develop a national strategic plan that leverages the CFPB’s supervision and enforcement capabilities. Finally, on planned rulemaking by the CFPB, the Director noted ongoing efforts to develop rules governing mortgage servicing, including force-placed insurance products and hybrid ARMs.