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Financial Services Law Insights and Observations

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  • CFPB Seeks Public Comments Into Student Loan Servicing Practices

    Consumer Finance

    On May 14, the CFPB published a Request For Information (RFI) seeking public comment on student loan servicing practices. In particular, the Bureau is requesting comments on six areas: (i) industry practices that cause repayment challenges; (ii) challenges faced by distressed borrowers; (iii) financial incentives that affect the quality of service; (iv) application of consumer protections in other markets to the loan servicing market; and (v) the availability of information about the student loan market. According to the Bureau, the comments received concerning the aforementioned areas will be used to assist student loan servicers and policymakers identify potential options to improve service, reduce defaults, develop industry best practices, examine consumer protection, and spur innovation.  Comments must be received by July 13. Along with the RFI, the CFPB released a factsheet on student debt stress, highlighting statistics that could lead to significant challenges for the industry. In prepared remarks for a field hearing concerning the issue, CFPB Director Richard Cordray alluded to the growing concerns within the student loan market, mentioning that two-thirds of graduates finishing their bachelor’s degrees graduate with debt averaging almost $30,000.

    CFPB Student Lending Agency Rule-Making & Guidance

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  • CFPB Reminds Mortgage Lenders to Include Section 8 Income

    Consumer Finance

    On May 11, the CFPB issued Bulletin 2015-02, reminding creditors to include income from the Section 8 Housing Choice Voucher (HCV) Homeownership Program when underwriting mortgage loans. Within the Bulletin, the Bureau noted that it “has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes,” further mentioning that “some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels.” The Bulletin warns that disparate treatment prohibited under ECOA and Reg. B may exist when a creditor does not consider Section 8 as a source of income and provides guidance on how lenders can mitigate their fair lending risk. In conjunction with the guidance, the CFPB also published a blog post, providing an overview of the Section 8 HCV Program and detailed how consumers can submit complaints if they believe they have been discriminated against.

    CFPB Mortgage Origination ECOA Agency Rule-Making & Guidance

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  • CFPB Issues Guidance on Housing Counselor Requirement

    Consumer Finance

    On April 15, the CFPB issued an interpretive rule clarifying requirements for providing a list of housing counselors to mortgage borrowers, as required under the Bureau’s 2013 Home Ownership and Equity Protection Act final rule. Among other things, the interpretive rule expounds upon how to provide applicants living abroad with homeownership counseling lists, permissible geolocation tools, conditions under which the homeownership counseling list may be combined with other disclosures, and determining which of the borrower’s addresses (e.g. current address, mailing address, or the address of the property securing the mortgage) should serve as the loan applicant’s location for purposes of generating the list. In addition to clarifying counselor qualifications for high-cost mortgage counseling and parameters, the interpretive rule also provides guidance regarding lender participation during the borrower’s housing counseling sessions to ensure that counselor independence and impartiality is preserved and to prevent violation of anti-steering provisions.

    CFPB HOEPA Agency Rule-Making & Guidance

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  • Utah Enacts Money Transmitter Act

    Consumer Finance

    On March 27, Utah Governor Gary Herbert signed S.B. 24, which modifies provisions related to persons and entities subject to the jurisdiction of Utah’s Department of Financial Institutions (DFI), amends the state’s Mortgage Lending and Servicing Act, and enacts the Money Transmitter Act. The Money Transmitter Act establishes new licensing requirements and grants rulemaking authority to the DFI to (i) prohibit practices that are misleading, unfair, or abusive, (ii) promote full disclosure of the terms and conditions of agreements between a customer and a money transmitter, and (iii) assure uniform application of applicable state or federal laws and regulations.

    Mortgage Servicing Money Service / Money Transmitters Agency Rule-Making & Guidance

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  • SEC Adopts Rule Giving Access to Capital for Smaller Companies

    Securities

    On March 25, the SEC adopted final rules to amend Regulation A, a current exemption from registration for smaller companies issuing securities.  The new rules, which allow smaller companies to offer and sell up to $50 million of securities within a twelve-month period – subject to certain eligibility, disclosure, and reporting requirements – expand Regulation A into two tiers for offering securities. Tier 1 allows eligible issuers to sell up to $20 million of securities without registration so long as security-holders who are affiliates of such issuers sell no more than $6 million in securities, whereas Tier 2 permits such issuers to sell up to $50 million of securities yet caps affiliate sales at $15 million. Moreover, Tier 2 offerings are subject to further supplementary disclosure and reporting requirements (e.g., requiring eligible issuers to provide audited financial statements and file annual and semiannual current event reports), and allow eligible issuers to preempt state registration and qualification requirements for securities sold to “qualified purchasers,” as such term is defined in the rules. The new rules will be effective 60 days after publication in the Federal Register.

    SEC Agency Rule-Making & Guidance

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  • SEC Chair Reveals Rulemaking Initiatives for 2015

    Securities

    On February 20, SEC Chair Mary Jo White delivered remarks regarding the agency’s 2014 accomplishments, including transformative rulemakings and enforcement, and its 2015 objectives. With respect to rulemaking, White outlined three specific areas that the SEC intends to enhance in 2015: (i) reforming market structure; (ii) risk monitoring of the asset manager industry; and (iii) raising capital for smaller companies. She stated the SEC is reviewing the current market structure and operations of the U.S. equity markets and working to “enhance the transparency of alternative trading system operations, expand investor understanding of broker routing decisions, address the regulatory status of active proprietary traders, and mitigate market stability concerns through a targeted anti-disruptive trading rule.” White described the SEC’s current asset management industry as “increasingly complex,” and noted that the SEC is reviewing three sets of recommendations to address this complexity and is paying “particular attention to the activities of asset managers.” Finally, White stated that the SEC will focus on implementing Regulation A+ and crowdfunding, both mandates of the JOBS Act, to assist smaller issuers with raising capital.

    SEC Agency Rule-Making & Guidance

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  • SEC Proposes Hedging Disclosure Rule

    Securities

    On February 9, the SEC issued a proposed rule implementing Section 955 of the Dodd-Frank Act. The rule would require directors, officers, and other employees of public companies to disclose in proxy and information statements whether they use derivatives and other financial instruments to offset or “hedge” against the decline in equity securities granted by the company as compensation, or held, directly or indirectly, by employees or directors. The proposed rule would apply to equity securities of a public company, its parent, subsidiary, or any subsidiary of any parent of the company that is registered with the SEC under Section 12 of the Exchange Act.  Public comments will be accepted for 60 days following publication in the Federal Register.

    Dodd-Frank SEC Compensation Agency Rule-Making & Guidance

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  • New York DFS Urges CFPB to Adopt "Strong" Payday Loan Rules

    Consumer Finance

    On February 4, NY DFS Superintendent Benjamin Lawsky sent a letter to the CFPB urging the agency to adopt strong national rules for the payday loan industry. In his letter, Lawksy highlighted four steps the agency should consider in its drafting of rules including (i) making clear that state laws with stronger anti-payday-lending rules still apply to lenders; (ii) banning payday lenders from using “remotely created checks;” (iii) restricting the sharing of consumers’ personal information by payday lenders, lead generators and other third parties; and (iv) creating a rigorous “ability-to-repay” standard for payday loans.

    CFPB Payday Lending NYDFS Agency Rule-Making & Guidance

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  • CFPB Proposes Changes to Mortgage Rules for Small Lenders

    Lending

    On January 29, the CFPB announced a proposed rule that would provide regulatory relief to more small lenders. Among other things, the proposed rule would (i) increase the loan origination limit to qualify for “small creditor” status from 500 loans to 2,000 loans annually; (ii) include certain mortgage affiliates in the calculation of small-creditor status; (iii) expand the definition of “rural” to include census blocks that are not in an urban area; and (iv) extend the transition period in which small lenders can make QMs with balloon payments, regardless of location, to April 1, 2016. Comments on the proposed rule are due by March 30.

    CFPB Mortgage Origination Community Banks Qualified Mortgage Agency Rule-Making & Guidance

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  • CFPB Finalizes TILA-RESPA Integrated Mortgage Disclosure (TRID) Amendments

    Consumer Finance

    As previously reported in our Special Alert on January 20, the CFPB finalized certain amendments to its TRID rule, which combines the mortgage disclosures consumers receive under the Truth in Lending Act and the Real Estate Settlement Procedures Act.  Significant amendments include: (i) allowing three business days for providing a revised Loan Estimate after an interest rate is locked (instead of the current same day requirement and the original proposal’s one business day requirement); and (ii) permitting the inclusion of certain information about construction loans on the Loan Estimate. The final rule, as amended, takes effect August 1.  For more information, please visit our TRID Resource Center.

    CFPB TILA RESPA TRID Agency Rule-Making & Guidance

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