Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On July 20, the Federal Register published the Department of the Treasury’s Request For Information on Expanding Access to Credit Through Online Marketplace Lending (RFI). The RFI seeks public comment on the three specific areas relating to the online marketplace lending industry: (i) business models of and products offered to consumers and small businesses; (ii) potential expansion of access to credit to the historically underserved; and (iii) the ways in which the financial regulatory framework can develop to support safe growth within the industry. According to the RFI, online marketplace lending delivers lower costs and faster decision times than traditional lenders, but, so far, the loans are usually only originated to prime or near-prime consumers. However, some online marketplace lenders are developing product structures and underwriting models that may allow for originating loans to non-prime borrowers at lower interest rates. With the rapid growth occurring in the online lending industry, the RFI aims to assist the Treasury Department in examining online lenders’ potential “to expand access to credit, and how the financial regulatory framework can develop to ensure the industry grows safely.” Comments are due August 31, 2015.
On July 15, the Wage and Hour Division of the Department of Labor (DOL) issued guidance to employers in determining whether a worker should be classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA). The Guidance first noted the “problematic trend” in misclassifying workers as independent contractors and the potential adverse effects of such misclassification, including the loss of workplace protections such as minimum wage, overtime compensation, unemployment insurance, and workers’ compensation, as well as the loss of tax revenues and the creation of an uneven playing field for employers. Beginning with the expansive FLSA definition of “employ” and applying a detailed six factor “economic realities” test, rather than a narrower common law control test, the Guidance concludes that most workers are employees under the FLSA’s broad definitions.
On July 8, HUD issued a final rule aimed at helping communities who receive HUD funding meet their fair housing obligations to provide affordable housing in more communities. The rule equips grantees with various new data and tools to better analyze the state of fair housing within their communities, and assist grantees in setting locally-determined benchmarks. The rule also requires new reports from local communities detailing how HUD funds will be allocated, and provides a phase-in period for grantees to adapt to the new requirements. In conjunction with the issuance of the final rule, HUD also released an Executive Summary, a fact sheet, and FAQs to provide greater clarity and support to grantees.
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.
Federal Banking Agencies Reveal Location For Latest EGRPRA Outreach Meeting Highlighting Rural Banking Issues
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.
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.
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.
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
- Melissa Klimkiewicz, (202) 349-8098
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.
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.”
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.
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.
The rule will become effective 60-days after publication in the Federal Register
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.
* * *
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.
- Benjamin B. Klubes, (202) 349-8002
- John P. Kromer, (202) 349-8040
- John C. Redding, (310) 424-3916
- Marshall T. Bell, (202) 461-2997
- Mitchell M. Grod, (310) 424-3907
- Jessica L. Pollet, (310) 424-3905
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.
- APPROVED Webcast: CFL license transition to NMLS
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting