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CFPB Issues Guidance On Loan Originator Compensation
In response to questions it has received from loan originators and their firms seeking to comply with compensation rules issued under TILA Regulation Z, the CFPB today issued Bulletin 2012-02. The Bulletin states that employers of loan originators may make contributions to employees’ qualified profit sharing, 401(k), and stock ownership plans (qualified plans) out of a profit pool derived from loan originations. The Federal Reserve Board previously had indicated that any compensation—even contributions to a qualified retirement plan—to a loan originator that derived from the profits of mortgage loan originations was “problematic” and likely prohibited by Regulation Z.
While the Bulletin expands the ability of lenders to contribute to their employees’ qualified plans, the Bulletin does not provide guidance about other types of profit-sharing arrangements, noting that such issues are “fact-specific.” According to the Bulletin, the CFPB will address these and other loan originator compensation issues in more detail in a proposed rule, which it plans to release in the “near future.” Under the Dodd-Frank Act, the CFPB is required to finalize loan originator compensation rules by January 21, 2013, and these rules must take effect by January 21, 2014.
Pursuant to rules issued by the Federal Reserve Board in September 2010 that became effective April 6, 2011, loan originators may not receive, either directly or indirectly, compensation that is based on any terms or conditions of a mortgage transaction, subject to certain limited exceptions. Commentary issued as part of that rulemaking describes compensation to include salaries, commissions, and annual or periodic bonuses, while covered transaction terms and conditions include the interest rate, loan-to-value ratio, or prepayment penalty. Moreover, compensation may not be tied to proxies for such transaction terms, such as credit scores.
In July 2011, administration of TILA Regulation Z was transferred to the CFPB, and employers have since been expressing their concern to the CFPB and asking for clarification. This CFPB guidance, issued almost exactly one year after the loan originator compensation rules became effective, signals a shift from the Federal Reserve's guidance, and employers should now be able to make contributions to qualified plans, even if the contributions derive from mortgage-origination profits. Originators and their employers also should look for the CFPB’s planned loan origination compensation rule, which may provide further clarification and guidance on these issues, but likely also will provide new general requirements for originator compensation.
Join Us! 2012 Fair Lending Today Conference
Join Us! 2012 Fair Lending Today Conference on Compliance, Regulatory and Litigation Issues and the CFPB in Today's Changing Enforcement Environment, hosted by BuckleySandler LLP. 2012 Panel Topics Include:
- Overview: A New Agency Emerges
- The Justice Department and Fair Lending: Disparate Impact Escapes Potential Elimination in Magner
- Mortgage Servicing Developments: The AG/DOJ Settlement, the CFPB, and Ongoing Enforcement
- Anatomy of a CFPB Enforcement Action
- The CFPB's Fair Lending Agenda for Auto, Private Student Lenders, and Non-Secured Lending
- New CFPB Enforcement Priorities for Credit Cards
- Fair and Responsible Banking Risk Management Update
When: Monday, April 30, 2012 Where: The Fairmont Hotel inWashington, DC Registration required. This conference is open to all financial services companies and others subject to CFPB oversight. Please no outside law firms, government agency personnel, consultant firms or media. For more information visit http://www.fairlendingtoday.com/ or contact fairlending@buckleysandler.com.
CFPB Files Amicus in TILA Rescission Case
On March 27, the CFPB announced that it recently filed an amicus brief in the U.S. Court of Appeals for the Tenth Circuit in a case involving the Truth in Lending Act (TILA) right to rescind a transaction, Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.). The CFPB argued that borrowers who do not receive the material disclosures required by TILA can rescind the transaction as long as they notify the lender of the cancellation within three years of consummation, even if they do not file suit within the three-year period. The CFPB urged the Tenth Circuit to reject the view of the majority of courts that the borrower must both notify the lender and file suit within three years. Citing both the statute and the CFPB’s implementing Regulation Z, the CFPB argued that the holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), that the right to rescind expires completely after three years, simply means that “consumers [must] exercise their rescission right by providing notice to their lender within three years of obtaining the loan,” and that consumers could file suit after three years if the lender failed to honor the rescission notice. As an indication of the Bureau’s intense interest in this issue, it noted that it plans to file amicus briefs on the same question in at least three other circuits in which briefing is still pending.
CFPB Submits First Annual FDCPA Report to Congress
On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act’s transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB’s FDCPA supervision authority, including its rulemaking to expand that authority by defining “larger participant” nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator’s FDCPA-related research and policy initiatives.
FTC Releases Survey on Consumer Reporting Agencies and FACTA
On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs’ practice of attempting to sell identity theft products to consumers reporting identify thefts.
Senators Push for CFPB Action on Payday Lending, Propose Federal Legislation
On March 12, Senators Jeff Merkley and Daniel Akaka released a letter sent to CFPB Director Richard Cordray urging that the CFPB take action to address online, offshore, and insured depository payday lending activities and products. The letter specifically pushes the CFPB to adopt rules and partner with state attorneys general to address (i) Internet-based lead generators that collect data on potential customers for payday lenders, (ii) offshore Internet lenders that avoid state laws by relying on loopholes in the rules covering debit transactions and remotely-created checks, and (iii) insured depository institutions that offer payday loan or similar products. In the same announcement, Senator Merkley revealed plans to introduce legislation that will, broadly, (i) require greater disclosure for online lending websites, (ii) address the abusive practice of providing false or misleading data to payday lenders and debt collectors to defraud consumers in paying debts they do not owe, (iii) attempt to limit the activities of offshore payday lenders, and (iv) address bank and insured depository institution payday loan products.
CFPB Proposes Rule Governing the Confidentiality of Privileged Information Provided to the Bureau
On March 12, the CFPB released a proposed rule to govern the confidential treatment of privileged information submitted to the Bureau by the financial institutions it regulates. The proposed rule, which would amend 12 C.F.R. part 1070, subpart D, would add a new section providing that a person’s submission of any information to the CFPB in the course of the CFPB’s supervisory or regulatory processes would not waive or otherwise affect any privilege that such person might claim under federal or state law with respect to the submitted information. In the preamble to the proposed rule, the CFPB notes that although the Dodd-Frank Act did not explicitly address whether the submission of confidential information to the CFPB affects any privilege a supervised entity might claim, the Dodd-Frank Act did grant the CFPB all the powers and duties of the prudential regulators regarding their transferred consumer financial protection functions. The CFPB concludes that this grant of powers and duties includes the ability to receive privileged information from supervised entities without resulting in a waiver of any privileges. The CFPB added that its proposed rule is promulgated pursuant to Congress’s delegation of authority to the CFPB to prescribe rules governing the confidential treatment of information obtained from persons during its exercise of its authority. In addition to providing for the non-waiver of privilege when submitting information to the CFPB, the proposed rule provides that the CFPB’s provision of privileged information to another federal or state agency would not waive any applicable privilege, whether the privilege belongs to the CFPB or any other person. Comments on the proposed rule must be submitted on or before April 16, 2012.
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.
CFPB Releases SAFE Act Exam Procedures
On March 7, the CFPB updated its Supervision and Examination Manual with SAFE Act examination procedures. The procedures set forth the background and requirements of the SAFE Act, and its federal implementing regulations, for use in examining federally regulated depository institutions for compliance with the SAFE Act.