InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB agrees to publish small-business data proposal by September
On February 26, the U.S. District Court for the Northern District of California approved a stipulated settlement between plaintiffs, including the California Reinvestment Coalition (CRC), and the CFPB to resolve a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act. As previously covered by InfoBytes, the plaintiffs argued that the Bureau’s failure to implement Section 1071—which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses—violates two provisions of the Administrative Procedures Act, and has harmed the CRC’s ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color.
Under the terms of the settlement, the Bureau has agreed to outline a proposal for collecting data and studying discrimination in small-business lending by September 15, and will also create a Small Business Advocacy Review panel by October 15 to prepare a report on the proposal within 60 days. The Bureau and the plaintiffs will also negotiate the deadlines for issuing the proposed rule, and, if an agreement cannot be reached, the parties will accept a court-supervised process for public reporting as well as for the development and issuance of the proposed and final rules.
Last November, the Bureau held a symposium covering small business lending and Section 1071. (Covered by InfoBytes here.) At the time, Director Kathy Kraninger noted in her opening remarks that the symposium would assist the Bureau with information gathering for upcoming rulemaking and emphasized that the Bureau is focused on a rulemaking that would not impede small business access to credit by imposing unnecessary costs on financial institutions.
DoD changes interpretation of MLA related to Guaranteed Asset Protection contracts
On February 28, the Department of Defense (DoD) published an amendment to its December 2017 interpretive rule (2017 Rule) for the Military Lending Act (MLA) to withdraw a provision concerning the exemption of credit secured by a motor vehicle or personal property. As previously covered by InfoBytes, the 2017 Rule stated that additional costs may be added to an extension of credit so long as these costs relate to the object securing the credit, and not the extension of credit itself. In particular, the 2017 Rule stated that if credit is extended to cover “Guaranteed Auto Protection insurance or a credit insurance premium” the loan is covered by the MLA.
Following the publication of the 2017 Rule, the DoD received several requests to withdraw this Rule. The requests raised concerns that creditors “would be unable to technically comply with the MLA . . . because 232.8(f) of the [MLA] regulation would prohibit creditors from taking a security interest in the vehicle in those circumstances and creditors may not extend credit if they could not take a security interest in the vehicle being purchased.” The DoD stated that it found merit in these concerns and agreed that additional analysis is warranted. As a result, the DoD has withdrawn amended Q&A #2 from the 2017 Rule, and reinstated the 2016 Rule, which states that loans secured by “personal property” do not fall within the exception to “consumer credit” if the creditor “simultaneously extends credit in an amount greater than the purchase price.”
The amended interpretive rule is effective immediately.
CFPB holds symposium on consumer access to financial records
On February 26, the CFPB held a symposium covering consumer access to financial records and Section 1033 of the Dodd-Frank Act, which deals with consumers’ rights to access information about their financial accounts. In her opening remarks, Director Kathy Kraninger pointed out three major changes in data aggregation since the OCC first warned banks about aggregating consumer data in 2001: (i) “the range of actors involved has expanded greatly”; (ii) “the extent to which they are using aggregated data to provide new products and services to millions of American consumers has grown in scope and scale”; and (iii) “technologies that enable safer and more efficient consumer authorized data sharing continue to evolve and proliferate.” According to the CFPB’s press release, the purpose of this symposium was “to elicit a variety of perspectives on the current and future state of the market for services based on consumer-authorized use of financial data.” The symposium consisted of three panels: (i) the current landscape and benefits and risks of consumer-authorized data access; (ii) market developments; and (iii) considerations for policymakers. Panel highlights include:
- Panel #1. The panelists considered potential benefits and risks for consumers around data access as well as the current landscape and benefits and risks of consumer-authorized data access. Panelists agreed that consumers should be given control over their data and also mentioned the need to educate consumers on data security. One panelist suggested that consumers need to understand not only the breadth of data that is accessible, but also what sensitive consumer data is being accessed, stored, and shared. She stressed that entities storing/accessing the data should be subject to the same supervision for cyber security standards as banks.
- Panel #2. The panel, which was comprised of experts in market developments and trends, including in the areas of cash flow underwriting and the business of securing consumer permission to access checking account data, discussed market developments in consumer-authorized data access. One panelist suggested that the U.S. is behind countries like Australia and Canada (where government intervention in the market clarified consumers’ legal right to access their financial data) because of a lack of connectivity and of data field availability in the U.S. Others discussed alternatives to the current screen scraping model—which does not advance transparency or traceability for consumers—such as a model based on an application program interface (API) (APIs can be used to combine data from various sources into one application). The panelists also discussed tokenized authentication as a possible middle phase when going from screen scraping to APIs. Panelists suggested that the market is making significant technological improvements, but lacks guidance from policymakers.
Panel #3. The third panel, focused on “where we are going and how we get there” or the “future of the market” and “considerations for policymakers on how to” ensure consumer data is safeguarded “while ensuring that consumers have continual access to their data.” Among other things, the panel discussed that regulatory intervention in this space has not been common. Many panelists also mentioned areas of uncertainty, including whether banks or consumers should decide the limitations of rights to consumer data. Regarding Section 1033, one panelist suggested that the bank view is that the CFPB does not need to regulate here and should not provide consumers and their agents with access to their information, however, any entities that have access to the data should be regulated. Others believed that banks and other financial institutions do not view Section 1033 correctly. Another area of uncertainty discussed was whether the consumer data right is an ownership right, and whether a bank can decide to whom it will or will not provide consumer data.
CFPB releases TRID FAQs
On February 26, the CFPB released 10 new lender credit FAQs to assist with TILA-RESPA Integrated Disclosure Rule (TRID Rule) compliance. Highlights from the FAQs are listed below:
- “[L]ender credits include [(i)] payments, such as credits, rebates, and reimbursements, that a creditor provides to a consumer to offset” a consumer’s closing costs paid “as part of the mortgage loan transaction”; and (ii) “premiums in the form of cash” provided by a creditor “to a consumer in exchange for specific acts, such as for accepting a specific interest rate, or as an incentive, such as to attract consumers away from competing creditors.”
- Lender credits can be specific or non-specific. Non-specific lender credits are also known as “general lender credits.” The FAQs provide examples of both types of lender credit, and note that the distinction is important, as the two types of lender credits are disclosed differently on the Closing Disclosure.
- Creditors are not required to disclose “a closing cost and a related lender credit on the Loan Estimate if the creditor” absorbs the cost, but will be required to disclose these costs if they are “offsetting a cost charged to the consumer.”
- Creditors are required to disclose a closing cost and a related lender credit on a Closing Disclosure if they absorb the cost, “even if the consumer will not be charged for the closing cost.”
- To disclose lender credits on a Loan Estimate, creditors must calculate the sum “of all general and specific lender credits.”
- The nature of how lender credits are disclosed on a Closing Disclosure varies based on whether it is a general lender credit or a specific lender credit.
- The nature of how lender credits for a “no-cost loan” are disclosed varies based “on whether [a] creditor is absorbing closing costs as well as whether [it] is offsetting costs for specific settlement services.”
- When disclosing all of the closing costs charged to consumers, creditors must include a corresponding total amount of lender credits.
- Creditors that provide “a lender credit to offset a certain dollar amount of closing costs” without specifying which costs are providing a general lender credit. The FAQs outlines the disclosure process.
- Lender credits can only change in certain circumstances. Regulation Z does not limit increases in lender credits on a Loan Estimate, but a decrease in “lender credits disclosed on [a] Loan Estimate” may “lead to a violation of the good faith disclosure standard” if it is not tied to a triggering event outlined in Regulation Z.
Kraninger: ATR/QM, Remittance Rules expected in May
On February 25, in a speech before the Credit Union National Association Government Affairs Conference, CFPB Director Kathy Kraninger discussed the Bureau’s rulemaking approach in the consumer financial marketplace. Specifically, Kraninger reminded attendees that the Bureau’s Advance Notice of Proposed Rulemaking (ANPR) on the Ability to Repay/Qualified Mortgage Rule (ATR/QM rule) issued last July signaled its “intent to allow the patch to expire as intended in January 2021 or shortly thereafter to allow for a smooth and orderly transition.” As previously covered by a Buckley Special Alert, the ANPR solicited feedback on, among other things, whether the debt-to-income ratio should be altered and how Regulation Z and the ATR/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Following a review of all received public comments, Kraninger stated that the Bureau has “decided to propose to amend the QM rule by moving away from the 43 percent debt-to-income ratio requirement,” and will instead “propose an alternative, such as [a] pricing threshold to better ensure that responsible, affordable mortgage credit remains available for consumers.” A proposed rule seeking comments on possible amendments will be issued no later than May, Kraninger stated.
Kraninger also discussed possible amendments to the Remittance Rule (Rule), which implements the Electronic Fund Transfer Act and requires financial companies handling international money transfers, or remittance transfers, to disclose exact fees and exchange rates. The Bureau issued a Request for Information last April on two aspects of the Rule (covered by InfoBytes here), and a follow-up Notice of Proposed Rulemaking (NPR) in December (covered by InfoBytes here) to propose a permanent safe harbor for financial companies that provide 500 or fewer remittance transfers a year. According to Kraninger, “[t]his would reduce the burden on over 400 banks and almost 250 credit unions that send a relatively small number of remittances. Ultimately, by allowing the use of estimates in some circumstances and adjusting the threshold for coverage under the rule, . . . [the] proposal was designed to preserve consumers’ ability to send remittances from their bank accounts to certain destinations.” The Bureau plans to finalize the remittances rulemaking in May.
Kraninger also commented on the Bureau’s regulatory review process, and reminded attendees of its “Start Small, Save Up” initiative, which encourages partnerships between financial companies/service providers and the Bureau in order to develop savings products for consumers.
Special Alert: CFPB releases Supplemental Notice of Proposed Rulemaking on Time-Barred Debt Disclosures
On February 21, the CFPB issued a Supplemental Notice of Proposed Rulemaking (NPRM) to amend Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), to require debt collectors to make certain disclosures when collecting time-barred debts (the “Supplemental Proposed Rule”).
The Supplemental Proposed Rule adds to the CFPB’s proposed rule, issued May 7, 2019, (InfoBytes coverage here), to amend Regulation F to broadly implement the FDCPA, with respect to third-party debt collectors (the “Proposed Rule”). The Bureau noted when releasing the earlier Proposed Rule that it was contemplating additional disclosure requirements for time-barred debt, and reserved space for such disclosures within Regulation F, as then proposed. The CFPB released several documents related to the Supplemental Proposed Rule, including a fact sheet discussing the Supplemental Proposed Rule and a report on the disclosure of time-barred debt and the right of revival, providing findings from quantitative disclosure testing that the CFPB conducted.* * *
Click here to read the full special alert.
If you have any questions regarding Time-Barred Debt Disclosures or other related issues, please visit our Debt Collection & Buying practice page or contact a Buckley attorney with whom you have worked in the past.FDIC guide encourages fintech/bank partnerships
On February 24, the FDIC’s technology lab, FDiTech, announced the release of a new guide intended to assist fintech companies and other third parties with bank partnerships. Conducting Business with Banks: A Guide for Fintechs and Third Parties identifies several areas for third parties to consider when exploring potential partnerships with banks relevant to navigating regulatory requirements and due diligence processes. These include being able to: (i) “[u]nderstand the framework of laws and regulations” applicable to banks, such as those “related to consumer protection, privacy and data security, . . . the Bank Secrecy Act[,] and federal anti-money laundering laws”; (ii) “[m]aintain a well-managed and financially strong business”; (iii) respond to requests for information from potential partners that demonstrate “product integrity, risk management mitigation, and consumer protection”; and (iv) demonstrate the ability to ensure ongoing compliance with applicable laws and regulations and that appropriate monitoring systems have been implemented. In addition, the guide also outlines special considerations for modelers, and emphasizes that banks will expect to understand a third party’s use of models and algorithms or other automated decision-making systems.
As previously covered by InfoBytes, FDiTech was established in 2019 to encourage innovation within the banking industry, support collaboration for piloting new products and services, eliminate regulatory uncertainty, and manage risks.
CFPB denies debt collection law firm’s request to set aside CID
On February 10, the CFPB denied a debt collection law firm’s request to modify or set aside a third-party Civil Investigative Demand (CID) issued to the firm by the Bureau while investigating possible violations of the FDCPA, CFPA, and the FCRA. As previously covered by InfoBytes, the Bureau also denied a request by a debt collection company to modify or set aside a CID, which sought information about the company’s business practices and its relationship with the firm in the same investigation. The firm’s petition asserted arguments largely based on the theory that the CFPB’s structure is unconstitutional, and that the Dodd-Frank Act provides the Bureau’s director with “overly broad executive authority.” Alternatively, the firm argued that if the CID is not set aside, it should be modified, stating, among other things, that the CID’s scope exceeds applicable statutes of limitation.
As it did in the debt collection company’s request to set aside or modify the CID, the Bureau rejected the firm’s constitutionality argument, stating that “[t]he administrative process for petitioning to modify or set aside CIDs is not the proper forum for raising and adjudicating challenges to the constitutionality of provisions of the Bureau’s statute.” Additionally, the Bureau’s Decision and Order discounts the firm’s statute of limitations argument, contending that “the Bureau is not limited to gathering information only from the time period in which conduct may be actionable. Instead, what matters is whether the information is relevant to conduct for which liability can be lawfully imposed.” The Bureau also directed the firm to comply with the CID within ten days of the Order.
FDIC seeks input on modernization
On February 19, the FDIC issued a notice and request for comment regarding modernizing “its signage and advertising requirements to better reflect how banks and savings associations currently operate and how consumers use banking services.” The Request for Information (RFI) solicits input on how the agency “can revise and clarify its sign and advertising rules related to FDIC deposit insurance.” Major changes to these rules have not been made since 2006, and the agency states that “the rules do not reflect evolving banking channels and operation.” Accordingly, the RFI also requests suggestions about how the FDIC can use technology or other solutions to help consumers distinguish FDIC-insured entities from nonbanks, and to prevent consumers from being harmed by non-insured entities’ potentially misleading or fraudulent representations. The RFI lists 21 questions to focus the public input. Comments must be received by March 19.
GSEs update interactive URLA
On January 29, Freddie Mac and Fannie Mae (GSEs) jointly announced the release of the updated interactive (fillable) pdf version of the Uniform Residential Loan Application (URLA), also known as Freddie Mac Form 65 and Fannie Mae Form 1003. The announcement also identifies a number of supporting documents published in connection with the new URLA, including instructions on how to complete the new form and a list of Frequently Asked Questions. An appendix at the end of the announcement illustrates improvements from the old application to the new application. Additionally, the GSEs have URLA pages on their websites to provide more information (see Freddie Mac’s URLA page here and Fannie Mae’s URLA page here). The effective date for the updated URLA is September 1, and lenders must begin using the new URLA form on November 1.