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Financial Services Law Insights and Observations

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  • HUD Proposes to Establish Deadline for FHA-Approved Lenders to File Insurance Claims

    Consumer Finance

    On July 6, HUD’s Federal Housing Administration (FHA) proposed a rule to establish a maximum time period for FHA-approved lenders to file insurance claims for benefits following the foreclosure of FHA-insured mortgages. Currently, HUD does not require mortgagees to file claims by a certain time, but the proposed rule will require lenders to file insurance claims (i) three months from when they obtain marketable title to the property; or (ii) when the property is sold to a third party. Since the housing market collapse, which dramatically increased mortgage defaults, mortgagees have chosen to forgo promptly filing insurance claims with the FHA, instead opting to wait and file multiple claims at once. This uncertainty of when claims will be filed, along with the high number filed at the same time, has strained FHA resources and negatively impacted its ability to project the future state of the Mutual Mortgage Insurance Fund (MMIF), which it is statutorily obligated to safeguard. In addition to the deadline, the proposed rule would ban from insurance payouts certain expenses incurred by mortgagees that are the result of their failure to timely fulfill the requirements necessary to submit an insurance claim (such as promptly initiating foreclosure). Comments on the proposed rule are due September 4, 2015.

    HUD Mortgage Insurance Agency Rule-Making & Guidance

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  • Federal Banking Agencies Reveal Location For Latest EGRPRA Outreach Meeting Highlighting Rural Banking Issues

    Lending

    On July 6, federal banking agencies – the Board of Governors, FDIC, and OCC – announced the date and location of the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Scheduled for August 4 at the Federal Reserve Bank of Kansas, the upcoming meeting will examine rural banking issues and will feature remarks from agency officials. This is the fourth of six scheduled outreach meetings around the country focused on identifying newly issued, outdated, or burdensome regulatory requirements imposed on financial institutions.

    FDIC Federal Reserve Community Banks Agency Rule-Making & Guidance

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  • Federal Banking Agencies Issue Final Flood Insurance Rule

    Consumer Finance

    On June 22, the federal banking agencies issued a joint final rule that modifies the mandatory purchase of flood insurance regulations to implement some provisions of the Biggert-Waters and Homeowner Flood Insurance Affordability Acts. Notable highlights include that the final rule, among other things: (i) expands escrow requirements for lenders who do not qualify for a small lender exception, (ii) clarifies the detached structure exemption, (iii) introduces new and revised sample notice forms and clauses relating to the escrow requirement and the availability of private flood insurance, and (iv) clarifies the circumstances under which lenders and servicers may charge borrowers for lender-placed flood insurance coverage. The escrow provisions and sample notice forms will become effective on January 1, 2016, and all other provisions will become effective October 1, 2015.  The agencies reminded that the escrow provisions in effect on July 5, 2012, the day before Biggert-Waters was enacted, will remain in effect and be enforced through December 31, 2015.

    The agencies also indicated that they plan to address Biggert-Waters’ private flood insurance provisions through a separate rulemaking.

    FDIC Federal Reserve OCC Flood Insurance Agency Rule-Making & Guidance Biggert-Waters Act

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  • Special Alert: CFPB Issues Proposal to Delay TRID Rule Until October 3

    Consumer Finance

    The CFPB issued a proposed rule today to delay the effective date of the TILA-RESPA Integrated Disclosure (“TRID”) rule, including all amendments, from August 1 to October 3, 2015. The proposed delayed effective date is two days later than the date announced last week so that the effective date falls on a Saturday. The CFPB chose Saturday because it “may allow for smoother implementation by affording industry time over the weekend to launch new systems configurations and to test systems. A Saturday launch is also consistent with existing industry plans tied to the Saturday August 1 effective date.”

    The proposed rule explains that, due to “an administrative error on the Bureau’s part in complying with the [Congressional Review Act]…, the [TRID] Rule cannot take effect until at the earliest August 15, 2015.” Because “some delay in the effective date is now required, the Bureau believes that a brief additional delay may benefit both consumers and industry more than would allowing the new rules to take effect on [August 15].” The Bureau stated that the additional delay is being proposed to avoid challenges associated with a mid-month effective date and to allow more time to implement the rule in light of recent information the CFPB received that “delays in the delivery of system updates have left creditors and others with limited time to fully test all of their systems and system components to ensure that each system works with the others in an effective manner.”

    The proposed rule does not include any substantive changes to the TRID rule, other than changes to reflect the new proposed effective date. Despite requests by many in industry, the Bureau did not propose to allow lenders to begin complying with the rule before the effective date.

    Comments must be received on or before July 7, 2015.

    For additional information and resources on the TRID rule, please visit our TRID Resource Center.

    * * *

    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

    CFPB TRID Agency Rule-Making & Guidance

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  • SEC Requests Public Feedback On Exchange-Traded Products

    Securities

    On June 12, the SEC issued a press release announcing that it is seeking public comment on how it should regulate exchange-traded products (ETPs), on how broker-dealers sell the securities, especially to retail investors, and on investors’ understanding of the nature and use of ETPs. In particular, the securities regulator is requesting public feedback on arbitrage mechanisms and market pricing for ETPs, legal exemptions, and other regulations related to the listing standards and trading of ETPs. Comments will be received for 60 days following publication in the Federal Register.

    SEC Agency Rule-Making & Guidance

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  • Special Alert: CFPB Finalizes Rule To Oversee Nonbank Auto Lenders

    Consumer Finance

    On June 10, the CFPB issued its final rule to oversee “larger participant” nonbank auto finance companies.  Although the CFPB received significant feedback during the comment period, the final rule is nearly identical to that proposed in September 2014.  Under the final rule, the CFPB will have supervisory authority over nonbank auto finance companies with at least 10,000 aggregate annual originations.  These originations include making, purchasing, acquiring, or refinancing extensions of credit for the purchase or lease of an automobile.  The CFPB estimates this threshold will bring about 34 entities and their affiliates under its supervisory authority, which represents roughly seven percent of all nonbank auto finance companies, and approximately 91% of the nonbank automobile financing market.  In addition to the final rule, the CFPB also published updated automobile finance examination procedures to include industry specific guidance for covered persons.

    The rule will take effect 60 days after publication in the Federal Register.  Although the CFPB has not determined when and in what order examinations will begin, some industry insiders have predicted they could start in late 2015.

    In the months since the CFPB released its proposed rule, auto finance industry trade associations and market participants submitted a number of comments to the CFPB addressing: (i) the threshold for defining “larger participant;” (ii) the definition of “lease” for purposes of the larger participant threshold; and (iii) exceptions for securitizations.

    Number of Originations

    With respect to the 10,000 originations threshold, although the CFPB received comments recommending the CFPB both increase and decrease the number, most appeared in favor of increasing the threshold.  As industry commenters noted, the low threshold results in participants with less than one percent market share and small businesses being deemed larger participants.  Commenters recommended an alternative threshold of 50,000 originations, which would capture approximately 86% of market participants. Ultimately, the CFPB adopted the original 10,000 originations threshold, noting it allowed the CFPB to “supervise market participants that represent a substantial portion of the automobile financing market and that have a significant impact on consumers.”

    Leases

    The final rule also extended the application of the term “lease” under Dodd-Frank to include automobile leasing.  The Dodd-Frank Act includes certain leases that are, among other things, the “functional equivalent of purchase finance arrangements.  12 U.S.C. § 5481(15)(A)(ii).  As detailed in the comments submitted to the CFPB, prudential regulators and other statutory schemes such as TILA have traditionally applied this idea of “functional equivalent” to leases where the monthly payments total a sum substantially equivalent to or in excess of the value of the property, resulting in the lessee becoming the owner of the property for little or no consideration at the end of the least term.  Nonetheless, the CFPB noted that, in light of its purpose and objectives, “functional equivalent of purchase finance agreements” should be interpreted from the perspective of the consumer.  In arriving at this conclusion, the CFPB noted that, from a customer’s point of view, lease transactions provide an identical experience to a purchase transactions because leasing requires an application process that involves providing basic financial information and credit history, an ongoing contractual obligation, and the option to purchase the vehicle at the end of the lease term for a pre-determined amount.

    Securitizations

    While the proposed rule excluded investments in asset-backed securities from the definition of “aggregate annual originations”, the CFPB expanded the securitization exception as part of the final rule. As a result, the exemption will also apply to purchases or acquisitions of obligations by securitization trusts and other special purpose entities created to facilitate securitization transactions.

     Timing

    The rule will become effective 60-days after publication in the Federal Register

    Examination Focus

    In its press release announcing the final rule, the CFPB identified a number of areas its examiners will focus on when conducting examinations of auto finance companies. Those areas include (i) the marketing and disclosure of terms in auto finance, (ii) credit reporting practices and accuracy, (iii) treatment of consumers when collecting debts both directly by the finance company and through its vendors, and (iv) fair lending under the Equal Credit Opportunity Act. In light of the CFPB’s continued focus on these areas, all market participants would be well served to review policies, procedures and practices occurring within their business.

     

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    Questions regarding the matters discussed in this Alert may be directed to the lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

     

    CFPB Auto Finance Agency Rule-Making & Guidance

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  • Agencies Finalize Diversity Policy Statement

    Securities

    On June 9, six federal agencies – the Federal Reserve, CFPB, FDIC, NCUA, OCC, and the SEC – issued a final interagency policy statement creating guidelines for assessing the diversity policies and practices of the entities they regulate. Mandated by Section 342 of the Dodd-Frank Act, the final policy statement requires the establishment of an Office of Minority and Women Inclusion at each of the agencies and includes standards for the agencies to assess an entity’s organizational commitment to diversity, workforce and employment practices, procurement and business practices, and practices to promote transparency of diversity and inclusion within the organization. The final interagency guidance incorporates over 200 comments received from financial institutions, industry trade groups, consumer advocates, and community leaders on the proposed standards issued in October 2013. The final policy statement will be effective upon publication in the Federal Register. The six agencies also are requesting public comment, due within 60 days following publication in the Federal Register, on the information collection aspects of the interagency guidance.

    FDIC CFPB Dodd-Frank Federal Reserve OCC NCUA SEC Diversity Agency Rule-Making & Guidance

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  • FCC Chairman Circulates Proposal to Strengthen Consumer Protection Under the TCPA; Open Meeting Scheduled For June 18

    Privacy, Cyber Risk & Data Security

    On May 27, the FCC released a fact sheet outlining Chairman Wheeler’s proposal for a series of rulings under the Telephone Consumer Protection Act (TCPA) that he asserts will better protect American consumers from unsolicited robocalls, spam text messages, and telemarketing calls. If adopted, the proposal would, among other things: (i) give consumers the right to revoke their consent to receive robocalls and robotexts at any reasonable time and in any reasonable way; (ii) authorize carriers to offer robocall-blocking or “Do Not Disturb” technologies to consumers; and (iii) require robocallers to stop calling a number when it has been reassigned to a new subscriber. Responding to multiple petitions that “sought clarity on how the Commission enforces” the TCPA, the proposal aims to “close loopholes and strengthen consumer protections already on the books.” The Chairman’s proposal is scheduled to be voted on at the Open Commission Meeting on June 18.

    TCPA FCC Agency Rule-Making & Guidance

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  • NY Issues Proposed Rules to Manage How Employers Pay Workers Using Debit Cards

    Fintech

    On May 27, the Governor of New York State announced that the state Department of Labor published new proposed rules intended to better regulate employers who pay their employees using debit cards.  The proposed regulations detail the responsibilities of employers that use debit cards to pay employees, and prohibit employers from profiting from or passing along costs to employees. In addition, the proposed rules prohibit employers from imposing fees (such as those for customer service, account maintenance, overdraft, and inactivity), and require employers to (i) obtain advance consent, which must be documented and kept on record for six years; (ii) make known to employees the local locations where their wages can be accessed for free; and (iii) provide unlimited free ATM withdrawals within a local network, including a method to withdraw the full amount of wages each pay period without penalty. The regulations will take effect following a 45-day notice and comment period.

    Debit Cards Agency Rule-Making & Guidance

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  • Department of Education Proposes Rules to Reign In Fees on Student Financial Accounts

    Consumer Finance

    The Department of Education is set to propose new regulations which could change how financial institutions provide services on college campuses, according to a NPRM to be published in the Federal Register on May 18. The new rules, part of a nearly 300-page “Program Integrity and Improvement” package, are intended to among other things (i) ensure that students have convenient access on their Title IV funds, (ii) do not incur unreasonable and uncommon financial account fees, and (iii) are not led to believe they must open a particular account from a financial institution to receive Federal student aid. The proposed regulations also update other provisions in the cash management regulations, clarify how previously passed coursework is treated with respect to Title IV funds eligibility, and streamline the requirements for converting clock hours to credit hours. Public comments on the proposed rulemaking will be due 45 days after date of publication in the Federal Register.

    UDAAP Debit Cards Department of Education Agency Rule-Making & Guidance

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