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  • CFPB requests 14% increase for FY 2020

    Federal Issues

    In February, CFPB Director Kathy Kraninger submitted a budget proposal seeking, among other things, a 13.7 percent increase for fiscal year (FY) 2020. Notably, the increase runs counter to President Trump’s FY 2019 and FY 2020 budgets, which sought budget cuts for the CFPB of $147 million and $23 million respectively (with a proposed $110 million budget cut for FY 2021). According to the Bureau’s budget proposal, the increase reflects costs associated with “recently approved staffing targets after the Bureau ended the hiring freeze previously in place since FY 2018 as well as additional funding for new initiatives in pursuit of the Bureau’s mission and strategic goals.” Included in these goals are budget increases to support (i) additional consumer education initiatives; (ii) “additional qualitative disclosure testing to evaluate consumer usability” related to the model validation notices that are currently under development as part of the Bureau’s proposed debt collection rule; (iii) field and economic laboratory studies intended to improve the understanding of issues related to consumer financial disclosures; (iv) processing and analyzing consumer complaints; and (v) “increased staffing levels in the Supervision, Enforcement, and Fair Lending program responsible for conducting examination activities.”

    Federal Issues CFPB Budget Supervision Enforcement Consumer Education Disclosures

  • FDIC finalizes securitization safe harbor

    Agency Rule-Making & Guidance

    On January 30, the FDIC adopted the Final Rule to Revise Securitization Safe Harbor Rule (rule) as recommended by FDIC staff in a memorandum dated January 23. In July, as previously covered by InfoBytes, the FDIC approved a proposal to remove the requirement that, for safe harbor treatment, “the documents governing a securitization issuance require compliance with Regulation AB” of the SEC Regulation AB, “in circumstances where Regulation AB is not, by its terms, applicable to that transaction.” The proposal suggested that “it is no longer clear that compliance with the public disclosure requirements of Regulation AB in a private placement or in an issuance not otherwise required to be registered is needed to achieve the policy objective of preventing a buildup of opaque and potentially risky securitizations such as occurred during the pre-crisis years, particularly where the imposition of such a requirement may serve to restrict overall liquidity.” The final rule—which is unchanged from the proposal—eliminates the “significant disclosure requirements” to no longer mandate that private placements of securitization obligations provide Regulation AB disclosures. With the adoption of the final rule, only those transactions that are subject to Regulation AB are required to make the disclosures. The rule is expected to increase the securitization of residential mortgages and will become effective 30-60 days after it is published in the Federal Register.

    Agency Rule-Making & Guidance FDIC Derivatives Bank Regulatory Deposit Insurance Securities Securitization Safe Harbor Rule RMBS Disclosures Mortgages SEC

  • Creditor collateral protection insurance disclosures required in New Jersey

    State Issues

    On January 13, the New Jersey governor signed S 2998, which amends the state’s collateral protection insurance (CPI) disclosure requirements. The amendments provide that when CPI is required and provided by the creditor, the creditor must disclose to the consumer debtors that they will be responsible for interest on the CPI cost “at the same rate that is applied pursuant to [the debtor’s] credit agreement.” The creditor must also provide a “good faith estimate” of what the CPI coverage will cost the debtor. Additionally, the creditor must instruct the debtors how to provide evidence of the required insurance, so that in those instances where the debtor obtains CPI, the creditor-purchased CPI can be cancelled and the costs and interest fees can be recovered. The amendments take effect on April 12.

    State Issues State Regulation State Legislation Disclosures Debt Collection Insurance

  • CFPB releases TILA, EFTA, and CARD Act annual report

    Federal Issues

    On December 18, the CFPB issued its mandated annual report to Congress covering activity in 2016 and 2017 pertaining to the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), and the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The report describes enforcement actions brought by the Bureau and federal agencies related to TILA, EFTA, the CARD Act (and respective implementing Regulations Z and E), as well as data on required reimbursements to consumers. The report also includes a compliance assessment of TILA and EFTA violations. Federal Financial Institutions Examination Council (FFIEC) member agencies report that more institutions were cited for violations of Regulation Z than Regulation E during the 2016 and 2017 reporting periods, and that the most frequently reported Regulation Z violations include (i) failing to disclose, or to accurately disclose, the finance charge on closed-end credit; (ii) failing to disclose good faith estimates on disclosures for closed-end credit; and (iii) failing to provide consumers with specific loan cost information on closing disclosures. The most commonly cited Regulation E violations include (i) failing to comply with investigation and timeframe requirements when resolving errors in electronic fund transfers; and (ii) failing to provide applicable disclosures. In addition, the report recaps FFIEC outreach activities related to TILA and EFTA, such as workshops, blogs, and other outreach events.

    Federal Issues CFPB TILA EFTA CARD Act FFIEC Regulation Z Regulation E Disclosures

  • Lawsuit says Prepaid Accounts Rule is “arbitrary and capricious”

    Courts

    On December 11, a payments company filed a lawsuit against the CFPB in the U.S. District Court for the District of Columbia alleging that the Bureau’s Prepaid Account Rule (Rule), which took effect April 1 and provides protections for prepaid account consumers, exceeds the agency’s statutory authority and is “arbitrary and capricious” under the Administrative Procedures Act (APA). The company further asserts that the Rule violates its First Amendment rights by requiring it to make confusing disclosures that contain categories not relevant to the company’s products. According to the complaint, the Rule mandates that the company send “short form” fee disclosures to customers that include references to fees for ATM balance inquiries, customer service, electronic withdrawal, international transactions, and other categories, and “prohibits [the company] from including explanatory phrases within the disclosure box to describe the nature of these fee categories.” These disclosures, the company asserts, have confused many customers who mistakenly believe the company charges fees to access funds stored as a balance with the company, to make a purchase with a merchant, or to send money to friends or family in the U.S. The company also claims that the Bureau erroneously lumped it into the same category as providers of general purpose reloadable cards (GPR cards), and argues that the Rule ignores how prepaid cards fundamentally differ from digital wallets, which has resulted in several unintended consequences.

    The company asserts that the Rule is unlawful and invalid under the APA and the Constitution for three principal reasons:

    • The Rule contravenes the Bureau’s statutory authority by (i) establishing a mandatory and misleading disclosure regime that is not authorized by federal law; and (ii) “impos[ing] a 30-day ban on consumers linking certain credit cards to their prepaid account—a prohibition the law nowhere authorizes the Bureau to impose.”
    • Even if the Bureau possesses the statutory authority it claims to have, the rulemaking process was “fundamentally flawed” due to its one-size-fits-all Rule that misunderstands the different characteristics of digital wallets compared to GPR cards. By treating digital wallets as if they are GPR cards, the Rule violates the APA’s reasoned decision-making requirement. Additionally, the Rule is marked by “an insufficient cost-benefit analysis that failed to properly weigh the limited benefits consumers might derive from the Rule against the costs” stemming from the Rule’s changes.
    • The Rule violates the First Amendment by failing to satisfy the heightened standard that a law or regulation “directly advances a substantial government interest” because it requires the company to makes certain disclosures that are irrelevant to its digital wallet product. Moreover, the Rule’s disclosure obligations “functionally impair the speech in which [the company] might otherwise engage” by mandating that it provide confusing and misleading disclosures about the nature of its offerings.

    The complaint asks that the Rule be vacated and declared arbitrary, an abuse of discretion, not in accordance with the law, and unconstitutional, and additionally seeks injunctive relief, attorneys’ fees and costs.

    Courts CFPB Digital Commerce Prepaid Rule Fees Disclosures Prepaid Cards

  • FCRA allowable disclosure charge remains unchanged

    Agency Rule-Making & Guidance

    On November 27, the CFPB announced that the ceiling on the maximum allowable charge for disclosures by a consumer reporting agency to a consumer pursuant to section 609 of the FCRA will remain unchanged at $12.50 for the 2020 calendar year. The final rule announcing the amount was published the same day in the Federal Register.

    Agency Rule-Making & Guidance CFPB FCRA Disclosures Consumer Reporting Agency

  • CFPB seeks feedback on TRID

    Agency Rule-Making & Guidance

    On November 20, the CFPB issued a request for information (RFI) regarding the TILA-RESPA Integrated Disclosures Rule (TRID Rule) assessment, which is required by Section 1022(d) of the Dodd-Frank Act. Section 1022(d) requires the Bureau to conduct an assessment of each “significant rule or order” no later than five years after its effective date. The Bureau issued the TRID Rule in November 2013, and the rule took effect on October 3, 2015. In addition to comments received on this RFI, the Bureau notes that it is also considering the approximately 63 comments already received regarding the TRID Rule from the 2018 series of RFIs issued on the adopted regulations and new rulemakings, as well as the inherited regulations (covered by InfoBytes here and here).

    The RFI seeks public feedback on any information relevant to assessing the effectiveness of the TRID Rule, including (i) comments on the feasibility and effectiveness of the assessment plan; (ii) recommendations to improve the assessment plan; (iii) data and information about the benefits, costs, and effectiveness of the TRID Rule; and (iv) recommendations for modifying, expanding, or eliminating the TRID Rule.

    Comments must be received within 60 days of publication in the Federal Register.

    Agency Rule-Making & Guidance TRID RFI Mortgages Mortgage Origination Dodd-Frank TILA RESPA CFPB Disclosures

  • SEC seeks input on RMBS asset-level disclosure requirements

    Securities

    On October 30, the SEC requested public input on asset-level disclosure requirements for residential mortgage-backed securities (RMBS). The current requirements, which were adopted in 2014 in response to the financial crisis, require issuers to disclose a wide range of data on each mortgage loan in the underlying pool at the time of an offering and on an ongoing basis. As previously covered by InfoBytes, in September, the U.S. Treasury Department released a Housing Reform Plan, which, among other things, recommended that the SEC review the RMBS asset-level disclosure requirements to assess the number of required reporting fields and to clarify certain defined terms for SEC-registered private-label securitization offerings. In response to Treasury’s plan, Chairman Clayton requests that SEC staff assess the “RMBS asset-level disclosure requirements with an eye toward facilitating SEC-registered offerings,” and seeks public input on a variety of questions related to the topic, including (i) whether the circumstances in the RMBS market have changed since the financial crisis and the 2014 adoption of the requirements; (ii) whether one or more data points in the requirements should be revised and why; and (iii) whether any data points should be eliminated and if elimination would result in any adverse effects. The announcement does not contain a deadline for members of the public to submit their input.

    Securities SEC RMBS Disclosures

  • FTC announces two actions involving fraudulent social media activity and online reviews

    Federal Issues

    On October 21, the FTC announced two separate actions involving social media and online reviews. In its complaint against a skincare company, the FTC alleged that the company misled consumers by posting fake reviews on a retailer’s website and failed to disclose company employees wrote the reviews. The FTC asserted that the retailer’s customer review section is “a forum for sharing authentic feedback about products,” and the company and owner “represented, directly or indirectly, expressly or by implication, that certain reviews of [the company] brand products on the [retailer’s] website reflected the experiences or opinions of users of the products.” The FTC argued that the failure to disclose that the owner or employees wrote the reviews constitutes a deceptive act or practice under Section 5 of the FTC Act because the information would “be material to consumers in evaluating the reviews of [the company] brand products in connection with a purchase or use decision.” In a 3-2 vote, the Commission approved the administrative consent order, which notably does not include any monetary penalties. The order prohibits the company from misrepresenting the status of an endorser and requires the company and owner to disclose the material connection between the reviewer and the product in the future.

    The FTC also entered into a proposed settlement with a now-defunct company and its owner for allegedly selling fake social media followers and subscribers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients; as well as to actors, athletes, and others who wanted to increase their social media appeal. According to the FTC, the company “provided such users of social media platforms with the means and instrumentalities for the commission of deceptive acts or practices,” in violation of Section 5(a) of the FTC Act. The Commission unanimously voted to approve the proposed court order, which bans the company from selling or assisting others in selling “social media influence.” The proposed order imposes a $2.5 million monetary judgment against the company owner, but suspends the majority upon the payment of $250,000.

    Federal Issues FTC Act Deceptive UDAP Disclosures Fraud FTC

  • CFPB issues final No-Action Letter policy, sandbox policy, and trial disclosure policy

    Agency Rule-Making & Guidance

    On September 10, the CFPB issued three final innovation policies, the No-Action Letter (NAL) Policy, Compliance Assistance Sandbox (CAS) Policy, and Trial Disclosure Program (TDP) Policy. Director Kraninger noted that the new policies will “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty. . .contribut[ing] to an environment where innovation can flourish—giving consumers more options and better choices.” In September 2018, the Bureau published the proposed TDP policy (covered by InfoBytes here), and in December 2018, the Bureau published the proposed NAL and CAS policies (covered by InfoBytes here). Highlights of the final policies include:

    • NAL. The NAL policy provides a NAL recipient reassurance that the Bureau will not bring a supervisory or enforcement action against the company for providing a product or service under the covered facts and circumstances. After an application is considered complete, the Bureau will grant or deny the request within 60 days. The Bureau intends to publish NALs on its website and, in some cases, a version or summary of the application. The Bureau may also publish denials and an explanation of why the application was denied. The policy notes that disclosure of information is governed by the Dodd-Frank Act, FOIA and the Bureau’s rule on Disclosure of Records and Information, which generally would prohibit the Bureau from disclosing confidential information.
    • CAS. The CAS policy will evaluate a product or service for compliance with relevant laws and will offer approved applicants a “safe harbor” from liability for certain covered conduct during the testing period under TILA, ECOA, or the EFTA. The CAS was originally proposed as the “Proposed Sandbox Policy,” and included, in addition to the now listed carve-outs, exemptions by order from statutory provisions of ECOA, HOEPA, and the Federal Deposit Insurance Act (FDIA). The final CAS policy does not include the exemption program. The Bureau noted that, based on the comments received on the proposal, it will issue, at a later date, a new proposal to establish a program for exemptions by order through a separate notice-and comment rulemaking.
    • TDP. The TDP policy creates the “CFPB Disclosure Sandbox,” which carries out the requirements of Section 1032(e) of the Dodd-Frank Act. The Bureau’s first TPD policy was finalized in 2013, allowing for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. Under the previous policy, the Bureau did not approve a single company program for participation. The updated TDP policy streamlines the application process, including providing formal determinations within 60 days of deeming an application complete. The policy provides procedures for requesting extensions of successful testing programs, as the Bureau expects most testing periods will start at two-years.

    The Bureau also announced the first NAL issued under its new policy in response to a request by HUD on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program. The NAL states that the Bureau will not take supervisory or enforcement action under RESPA against HUD-certified HCAs that have entered into certain fee-for-service arrangements with lenders for pre-purchase housing counseling services. Specifically, the Bureau will not take such action against a HCA for including and adhering to a provision in such agreements conditioning the lender’s payment for the housing counseling services on the consumer making contact or closing a loan with the lender, even if that activity could be construed as a referral under RESPA, provided that the level of payment for the services is no more than a level that is commensurate with the services provided and is reasonable and customary for the area. The Bureau issued a template for lenders to seek a NAL for such arrangements, which includes certain anti-steering certifications that (i) the consumer will choose between comparable products from at least three different lenders; (ii) the funding is based on services rendered, not on the terms or conditions of any mortgage loan or related transaction; and (iii) no endorsement, sponsorship, or other preferential treatment will be conveyed to the lender for entering into the arrangement. According to the Bureau, the NAL, “is intended to facilitate HCAs entering into such agreements with lenders and will enhance the ability of housing counseling agencies to obtain funding from additional sources.” In addition to the template, the Bureau has made the HUD NAL application publicly available as well.

    Agency Rule-Making & Guidance CFPB Disclosures No Action Letter Regulatory Sandbox Dodd-Frank Fintech

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