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28 state AGs argue CFPB’s debt collection proposal “falls far short”
On September 18, 28 state attorneys general filed a comment letter in response to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”), urging the Bureau to reconsider the proposal. As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The comment letter argues that, “on the most critical issues, the Proposed Rule falls far short.” Specifically, the AGs assert that the bright-line call limit would not meaningfully reduce calls for the majority of consumers because the limit is placed on the debt, not on the consumer, which “renders any benefits to consumers illusory.” Moreover, because there is no restriction on the number of electronic communications a debt collector can send, the AGs argue that the Proposed Rule would result in a “barrage of emails and texts, and even social media contacts.” In addition to the concerns on contact, the letter, among other things, argues that the Proposed Rule: (i) should require affirmative consent for contact methods outside of phone or mail, as opposed to the opt-out requirements; (ii) should only allow for electronic delivery of validation notices with E-SIGN Act compliance; (iii) should have a strict-liability standard for collections on time-barred debt; and (iv) should apply to first-party creditors, as well as third-party creditors. Lastly, the letter notes the Proposed Rule fails to address a number of other topics, including the substantiation of debt prior to litigation, debt payment allocation, and the additional challenges faced by servicemembers.
NCUA approves additional payday loan alternative
On September 19, the NCUA announced the approval of a final rule creating a new payday alternative loan product (PAL II). As previously covered by InfoBytes, in June 2018, NCUA proposed the PAL II as an additional offering to the current payday alternative loan product (PAL I), which has been available since 2010. PAL II includes most features of PAL I except that it (i) eliminates a loan minimum and sets the maximum at $2,000; (ii) requires a minimum loan term of one month and a maximum of 12 months; and (iii) does not contain a requirement for the minimum length of a membership. Moreover, federal credit unions are restricted to offering only one type of PAL loan to a member at any given time. All prior requirements of PAL I loans, such as the prohibition against rollovers, the limit on the number of loans a single borrower can take in a given period, and full amortization, remain in effect. The final rule will be effective 60 days after publication in the Federal Register.
FTC supports CFPB on debt collection proposal
On September 18, the FTC issued its comment letter to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The FTC is generally in support of the Proposed Rule, and the Commission voted unanimously to approve the submission of the comment. In addition to summarizing the FTC’s legal authority and efforts to protect consumers from unlawful debt collection practices (such as enforcement actions, workshops, and outreach) the comment letter addresses several topics covered in the Proposed Rule. In particular, the FTC supports the Proposed Rule’s provisions on passive collections, decedent debt, and time and place restrictions. Other highlights of the letter include:
- Validation notices. The FTC supports the proposed changes to validation notices, which mandate more information to be provided to the consumer about the debt and the rights the consumer has associated with that debt. The comment letter encourages the CFPB to consider the benefits and risks with regard to the safe harbor for emailed validation notices in initial communications, noting it is important that debt collectors use email addresses that are current and also, that the emails are not sent to unauthorized third parties.
- Time-barred debts. The FTC supports the proposed prohibition on collectors threatening or bringing legal action against consumers to collect on debts that they know or should know are time-barred. However, the comment letter notes that consideration should be given to whether requiring the showing that the collector knew or should have known about the age of the debt is a potential unnecessary additional burden on law enforcement agencies.
- Prohibitions on the sale or transfer of certain debts. The FTC supports the proposed prohibition on selling, transferring, or placing for collection a debt that the collector knows or should know has been paid or settled, discharged in bankruptcy, or has been the subject of an identity theft report. The comment letter requests that the CFPB consider adding to this prohibition additional categories of debt that are “more squarely associated with phantom debt collection, including, for example, debts that are counterfeit or fictitious.”
- Communications media. The FTC supports the proposed requirement that a debt collector include—in emails, text messages and other electronic communications—an option for the consumer to opt-out of communications through that particular medium. The comment letter encourages the CFPB to consider requiring collectors to provide a direct, simple, electronic mechanism to quickly exercise this opt-out right.
- Restrictions on disclosures to third parties. The FTC supports the proposed definition of “limited-content messages” but encourages the CFPB to consider ways to minimize the likelihood that third parties would recognize limited-content messages as being associated with a debt collection and notes that allowing for these messages during live calls poses heightened risk for disclosure of the debt.
- Telephone call frequency limits. The FTC supports the proposed restrictions on call frequency and notes that these protections should apply to calls that “may not cause a traditional ring,” including ringless voicemail messages. Additionally, the FTC supports the application of the protections to limited-content messages and location information calls to third parties.
SEC, CFTC join other regulators in approving Volcker Rule revisions
On September 18, the SEC announced the approval of final revisions to the Volker Rule (the Rule) to simplify and tailor compliance with Section 13 of the Bank Holding Company Act’s restrictions on a bank’s ability to engage in proprietary trading and own certain funds. As previously covered by InfoBytes, the final revisions were approved by the OCC and FDIC at the end of August, and the Federal Reserve Board is expected to adopt the changes in the near future. In approving the revisions, Chairman Jay Clayton stated that the SEC collaborated with the other federal regulatory agencies to ensure the changes would “effectively implement statutory mandates without imposing undue burdens on participants in our markets, including imposing unnecessary costs or reducing access to capital and liquidity.” Chairman Clayton emphasized that the revisions draw on the agencies’ “collective experience in implementing the rule and overseeing compliance in our complex marketplace over a number of years.”
Earlier, on September 16, the CFTC announced a 3-2 vote to approve the final revisions. Commissioner Tarbert stated that the final revisions would provide banking entities and their affiliates with “greater clarity and certainty about what activities are permitted under” the Rule as well as reduce compliance burdens. In voting against the approval, Commissioner Behnam issued a dissenting statement expressing, among other things, concerns about “narrowing the scope of financial instruments subject to the [] Rule,” which would limit the Rule’s scope “so significantly that it no longer will provide meaningful constraints on speculative proprietary trading by banks.” Commissioner Berkovitz also dissented, arguing that the revisions “will render enforcement of the [R]ule difficult if not impossible by leaving implementation of significant requirements to the discretion of the banking entities, creating presumptions of compliance that would be nearly impossible to overcome, and eliminating numerous reporting requirements.” Commissioner Berkovitz also criticized the rulemaking process that led to the final revisions, arguing that a number of the changes were not adequately discussed in the notice of proposed rulemaking process, including amendments to the “accounting prong” and the rebuttable presumption of proprietary trading.
OCC issues guidance on appraisal management company registration
On September 16, the OCC issued Bulletin 2019-43, “Appraisals: Appraisal Management Company Registration Requirements,” which reminds covered institutions of the new registration requirement for appraisal management companies (AMC) that became effective on August 10. Specifically, under 12 CFR 34, subpart H, AMCs are now required to register with the state or states in which they do business; however, an AMC that is owned and controlled by an insured depository institution and regulated by the OCC, Federal Reserve Board, or FDIC is not subject to the registration requirement. The Bulletin reminds covered institutions that they should conduct sufficient due diligence to confirm that third-party AMCs are registered as required, including (i) checking the Appraisal Subcommittee of the Federal Financial Institutions Examination Council’s (ASC) national AMC registry; (ii) checking the relevant state’s AMC registry if the AMC is not listed on the national registry; and (iii) if no electronic registry check is available, requesting evidence of registration directly from the AMC. Moreover, if a covered institution determines that a federally related transaction is in a state that is not registering AMCs, an institution may instead use an individual appraiser, a staff appraiser employed by the institution, a smaller AMC not subject to the regulation, or a federally regulated AMC.
CFPB issues final No-Action Letter policy, sandbox policy, and trial disclosure policy
On September 10, the CFPB issued three final innovation policies, the No-Action Letter (NAL) Policy, Compliance Assistance Sandbox (CAS) Policy, and Trial Disclosure Program (TDP) Policy. Director Kraninger noted that the new policies will “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty. . .contribut[ing] to an environment where innovation can flourish—giving consumers more options and better choices.” In September 2018, the Bureau published the proposed TDP policy (covered by InfoBytes here), and in December 2018, the Bureau published the proposed NAL and CAS policies (covered by InfoBytes here). Highlights of the final policies include:
- NAL. The NAL policy provides a NAL recipient reassurance that the Bureau will not bring a supervisory or enforcement action against the company for providing a product or service under the covered facts and circumstances. After an application is considered complete, the Bureau will grant or deny the request within 60 days. The Bureau intends to publish NALs on its website and, in some cases, a version or summary of the application. The Bureau may also publish denials and an explanation of why the application was denied. The policy notes that disclosure of information is governed by the Dodd-Frank Act, FOIA and the Bureau’s rule on Disclosure of Records and Information, which generally would prohibit the Bureau from disclosing confidential information.
- CAS. The CAS policy will evaluate a product or service for compliance with relevant laws and will offer approved applicants a “safe harbor” from liability for certain covered conduct during the testing period under TILA, ECOA, or the EFTA. The CAS was originally proposed as the “Proposed Sandbox Policy,” and included, in addition to the now listed carve-outs, exemptions by order from statutory provisions of ECOA, HOEPA, and the Federal Deposit Insurance Act (FDIA). The final CAS policy does not include the exemption program. The Bureau noted that, based on the comments received on the proposal, it will issue, at a later date, a new proposal to establish a program for exemptions by order through a separate notice-and comment rulemaking.
- TDP. The TDP policy creates the “CFPB Disclosure Sandbox,” which carries out the requirements of Section 1032(e) of the Dodd-Frank Act. The Bureau’s first TPD policy was finalized in 2013, allowing for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. Under the previous policy, the Bureau did not approve a single company program for participation. The updated TDP policy streamlines the application process, including providing formal determinations within 60 days of deeming an application complete. The policy provides procedures for requesting extensions of successful testing programs, as the Bureau expects most testing periods will start at two-years.
The Bureau also announced the first NAL issued under its new policy in response to a request by HUD on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program. The NAL states that the Bureau will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. Specifically, the Bureau will not take such action against a HCA for including and adhering to a provision in such agreements conditioning the lender’s payment for the housing counseling services on the consumer making contact or closing a loan with the lender, even if that activity could be construed as a referral under RESPA, provided that the level of payment for the services is no more than a level that is commensurate with the services provided and is reasonable and customary for the area. The Bureau issued a template for lenders to seek a NAL for such arrangements, which includes certain anti-steering certifications that (i) the consumer will choose between comparable products from at least three different lenders; (ii) the funding is based on services rendered, not on the terms or conditions of any mortgage loan or related transaction; and (iii) no endorsement, sponsorship, or other preferential treatment will be conveyed to the lender for entering into the arrangement. According to the Bureau, the NAL, “is intended to facilitate HCAs entering into such agreements with lenders and will enhance the ability of housing counseling agencies to obtain funding from additional sources.” In addition to the template, the Bureau has made the HUD NAL application publicly available as well.
FDIC updates Consumer Compliance Examination Manual
On September 10, the FDIC announced updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for evaluating financial institutions’ compliance with federal consumer protection laws and regulations. The recent updates include, among other things, (i) changes to the sections and questions of the Fair Lending Scope and Conclusions Memorandum; and (ii) incorporation of the private flood insurance final rule’s provisions pertaining to the mandatory and discretionary acceptance of private flood insurance by financial institutions.
CFPB updates HMDA webinars
On August 29, the CFPB updated two HMDA webinars to reflect amendments made by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and the interpretive and procedural rule issued by the CFPB in August 2018. (Previous InfoBytes coverage on the amendments and the interpretive and procedural rule available here.) The Bureau also released a new HMDA webinar to provide an overview “on reporting certain application or covered loan features, pricing information, features of the property, and transaction indicators.”
CFPB updates auto finance section of the Supervision and Examinations Manual
On August 28, the CFPB updated its examination procedures for automobile finance in its Supervision and Examinations Manual. The procedures are comprised of seven modules and each examination will cover one or more modules. Prior to using the procedures, examiners will complete a risk assessment and examination scope memorandum, which will assist in determining which of the seven modules the exam will cover: (i) company business model; (ii) advertising and marketing; (iii) application and origination; (iv) payment processing and account maintenance; (v) collections, debt restructuring, repossession, and accounts in bankruptcy; (vi) credit reporting, information sharing, and privacy; and (vii) examiner conclusions and wrap-up.
FFIEC urges standardized cybersecurity approach
On August 28, the FFIEC issued a press release emphasizing the benefits of implementing a standardized cybersecurity preparedness approach. The FFIEC noted that firms who adopt a standardized approach are “better able to track their progress over time, and share information and best practices with other financial institutions and with regulators.” Highlighted are several standardized tools for financial institutions to use when assessing and improving their level of cybersecurity preparedness, including the FFIEC Cybersecurity Assessment Tool, the Financial Services Sector Coordinating Council Cybersecurity Profile, the National Institute of Standards and Technology Cybersecurity Framework, and the Center for Internet Security Critical Security Controls.