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Financial Services Law Insights and Observations


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  • CFPB issues spring supervisory highlights

    Federal Issues

    On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:

    • Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
    • Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
    • Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
    • Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
    • Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
    • Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
    • Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
    • Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
    • Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.

    The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).

    Federal Issues CFPB Supervision Examination UDAAP Auto Lending CFPA Consumer Finance Consumer Reporting Credit Report FCRA Regulation V Credit Furnishing Credit Cards Regulation Z Regulation E EFTA Debt Collection Mortgages Deposits Prepaid Accounts Remittance Student Loan Servicer

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  • CFPB’s UDAAP claims to proceed against mortgage lender


    On March 31, the U.S. District Court for the District of Columbia mostly denied motions to dismiss filed by a mortgage lender and four executives (collectively, “defendants”) sued by the CFPB for allegedly engaging in unlawful mortgage lending practices. As previously covered by InfoBytes, the Bureau filed a complaint last year against the defendants alleging violations of several federal laws, including TILA and the CFPA. According to the Bureau, (i) unlicensed employees allegedly offered and negotiated mortgage terms; (ii) company policy regularly required consumers to submit documents for verification before receiving a loan estimate; (iii) employees denied consumers credit without issuing an adverse action notice; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of FHA streamlined refinance loans. 

    The mortgage lender had argued in its motion to dismiss that neither TILA nor the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) required the lender to ensure that its individual employees were licensed under state law. In denying the motions to dismiss, the court disagreed with the lender’s position stating that in order for a mortgage originator to comply with TILA, it must also comply with Bureau requirements set out in Regulation Z, including a requirement that “obligates loan originator organizations to ensure that individual loan originators working for them are licensed or registered as required by state and federal laws.”

    The court also concluded that the individual defendants must face claims for allegedly engaging in unfair or deceptive practices. The Bureau contended that the company’s chief compliance officer had warned the individual defendants that certain unlicensed employees were engaging in activities requiring licensure, and that the company’s owners approved the business model that permitted the underlying practices. According to the court, an individual “engages” in a UDAAP violation if the individual “participated directly in the practices or acts or had authority to control them” and “‘had or should have had knowledge or awareness’ of the misconduct.” The court rejected defendants’ arguments that it was improper to adopt this standard, and stated that “the fact that a separate theory of liability exists for substantially assisting a corporate defendant’s UDAAP violations has no bearing on how courts evaluate whether an individual defendant himself engaged in a UDAAP violation.”

    While the court allowed the count to continue to the extent that it was based on allegations of unlicensed employees performing duties that would require licensure, it found that the complaint did not support an inference that the individual defendants knew that the employees were engaging in activities to make it appear that they were licensed. The court provided the Bureau an opportunity to replead the count to provide a stronger basis for such an inference.

    Courts CFPB Mortgages UDAAP Deceptive Enforcement TILA FCRA ECOA MAP Rule CFPA Regulation Z Unfair

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  • New Mexico caps interest rates on small-dollar loans at 36%

    State Issues

    On March 1, the New Mexico governor signed HB 132, which amends certain provisions related to the state’s small dollar lending requirements. Among other things, the bill makes several amendments to the New Mexico Bank Installment Loan Act of 1959 (BILA) and the New Mexico Small Loan Act of 1955 (SLA) by raising the maximum installment loan amount to $10,000 and providing the following: (i) “no lender shall make a loan pursuant to the [BILA] to a borrower who is also indebted to that lender pursuant to the [SLA] unless the loan made pursuant to the [SLA] is paid and released at the time the loan is made”; (ii) only federally insured depository institutions may make a loan under the BILA with an initial stated maturity of less than one hundred twenty days; (iii) a lender that is not a federally insured depository institution may not make a loan under the BILA “unless the loan is repayable in a minimum of four substantially equal installment payments of principal and interest”; and (iv) lenders, aside from federally insured depository institutions, may not make a loan with an annual percentage rate (APR) greater than 36 percent (a specified APR increase is permitted if the prime rate of interest exceeds 10 percent for three consecutive months). When calculating the APR, a lender must include finance charges as defined in Regulation Z “for any ancillary product or service sold or any fee charged in connection or concurrent with the extension of credit, any credit insurance premium or fee and any charge for single premium credit insurance or any fee related to insurance.” Excluded from the calculation are fees paid to public officials in connection with the extension of credit, including fees to record liens, and fees on a loan of $500 or less, provided the fee does not exceed five percent of the loan’s total principal and is not imposed on a borrower more than once in a twelve-month period.

    The act also expands the SLA’s scope on existing anti-evasion provisions to specify that a person may not make small dollar loans in amounts of $10,000 or less without first having obtained a license from the director. The amendments also expand the scope of the anti-evasion provisions to include (i) the “making, offering, assisting or arranging a debtor to obtain a loan with a greater rate of interest . . . through any method, including mail, telephone, internet or any electronic means, regardless of whether the person has a physical location in the state”; and (ii) “a person purporting to act as an agent, service provider or in another capacity for another entity that is exempt from the [SLA]” provided the person meets certain specified criteria, such as “the person holds, acquires or maintains, directly or indirectly, the predominate economic interest in the loan” or “the totality of the circumstances indicate that the person and the transaction is structured to evade the requirements of the [SLA].” Under the act, a violation of a provision of the SLA that constitutes either an unfair or deceptive trade practice or an unconscionable trade practice is actionable under the Unfair Practices Act.

    The act also makes various amendments to a licensees’ books and records requirements to facilitate the examinations and investigations conducted by the Director of the Financial Institutions Division of the Regulation and Licensing Department. Failure to comply may result in the suspension of a license. Additionally, the act provides numerous amended licensing reporting requirements concerning the loan products offered by a licensee, average repayment times, and “the number of borrowers who extended, renewed, refinanced or rolled over their loans prior to or at the same time as paying their loan balance in full, or took out a new loan within thirty days of repaying that loan,” among other things. The act also outlines credit reporting requirements, advertising restrictions, and requirements for the making and paying of small dollar loans, including specific limitations on charges after judgment and interest.

    The act takes effect January 1, 2023.

    State Issues Licensing State Legislation Interest Rate Usury Consumer Finance New Mexico Regulation Z

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  • CFPB may revisit EWA guidance

    Federal Issues

    On January 18, acting CFPB General Counsel Seth Frotman sent a letter to consumer advocates responding to their concerns that the Bureau’s November 2020 advisory opinion on earned wage access (EWA) products was being misused as justification for passage by proponents of a pending New Jersey bill that would permit third-party earned wage access companies to charge fees or permit “tips” for their products without having to abide by the state’s 30 percent usury cap. As previously covered by InfoBytes, the Bureau issued an advisory opinion on EWA products to address the uncertainty as to whether EWA providers that meet short-term liquidity needs that arise between paychecks “are offering or extending ‘credit’” under Regulation Z, which implements TILA. The advisory opinion stated that “‘a Covered EWA Program does not involve the offering or extension of ‘credit,’” and noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.” In December 2020, the Bureau approved a compliance assistance sandbox application, which confirmed that a financial services company’s EWA program did not involve the offering or extension of “credit” as defined by section 1026.2(a)(14) of Regulation Z. The Bureau noted that various features often found in credit transactions were absent from the company’s program, and issued a two-year approval order, which provides the company a safe harbor from liability under TILA and Regulation Z, to the fullest extent permitted by section 130(f) as to any act done in good faith compliance with the order (covered by InfoBytes here). 

    In his letter, Frotman stated that “[i]t appears from your recounting of the legislative history that the advisory opinion has created confusion, as proponents of the bill seem to have misunderstood the scope of the opinion. The CFPB’s advisory opinion, by its terms, is limited to a narrow set of facts—as relevant here, earned wage products where no fee, voluntary or otherwise, is charged or collected.” Frotman acknowledged that the Bureau’s advisory opinion has also received pushback from consumer groups who sent a letter last year urging the Bureau to rescind the advisory opinion and sandbox approval and regulate fee-based EWA products as credit subject to TILA (covered by InfoBytes here). “Given these repeated reports of confusion caused by the advisory opinion due to its focus on a limited set of facts, I plan to recommend to the Director that the CFPB consider how to provide greater clarity on these types of issues,” Frotman wrote. He further stated that the advisory opinion did not purport to interpret whether the covered EWA products would be “credit” under other statutes other than TILA, including the CFPA or ECOA, or whether they would be considered credit under state law.

    Federal Issues CFPB Earned Wage Access State Issues State Legislation Regulatory Sandbox TILA Regulation Z Advisory Opinion

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  • 3rd Circuit vacates TILA/RESPA judgment in favor of mortgage lender


    On January 12, the U.S. Court of Appeals for the Third Circuit vacated an order granting summary judgment in favor of a mortgage lender (defendant) for alleged violations of TILA and RESPA, among other claims. The plaintiff, a retired disabled military veteran, contracted with a home builder to purchase a home and used the defendant to obtain mortgage financing, which was later transferred to a servicing company. The plaintiff contended that the defendant allegedly (i) provided outdated TILA and RESPA disclosures; (ii) misrepresented that the plaintiff would not have to pay property taxes; (iii) failed to make a reasonable and good faith determination of the plaintiff’s ability to pay; and (iv) failed to provide notice of the transfer of servicing rights. On appeal, the 3rd Circuit determined that the defendant did not meet the initial burden to show no genuine dispute as to any material fact related to the plaintiff’s claims, and remanded the action. Without assessing the evidentiary value of the testimonies and materials submitted by each party in support of their own version of events, the appellate court reasoned that “these materials do not foreclose a reasonable jury from crediting [the plaintiff’s] testimony over [the defendant’s] account and finding [the defendant] liable.”

    Courts Appellate Third Circuit TILA RESPA Consumer Finance Mortgages State Issues Regulation Z Regulation X

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  • CFPB releases 2022 rural or underserved counties lists

    Agency Rule-Making & Guidance

    Recently, the CFPB released its annual lists of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with these releases, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under Regulation Z.

    Agency Rule-Making & Guidance CFPB Underserved TILA Regulation Z

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  • CFPB updates Mortgage Origination Examination Procedures

    Agency Rule-Making & Guidance

    On December 22, the CFPB updated its Mortgage Origination Examination Procedures to reflect amendments to Regulation Z’s Qualified Mortgage (QM) provisions. The Mortgage Origination Examination Procedures address various elements of the mortgage origination process and provide guidance for examinations of mortgage brokers and mortgage lenders. As previously covered by InfoBytes, last April the Bureau issued a final rule extending the mandatory compliance date of the General QM final rule to October 1, 2022. By extending the mandatory compliance date, lenders will now have the option of complying with either the revised General QM definition or the original DTI-based General QM definition on applications received on or after March 1, but prior to October 1, 2022. 

    Agency Rule-Making & Guidance Federal Issues CFPB Mortgages Mortgage Origination Examination Qualified Mortgage Regulation Z

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  • CFPB reaches settlement with online lender

    Federal Issues

    On December 30, the U.S. District Court for the Northern District of California approved the stipulated final judgment and order against a California-based online lender (defendant) for alleged violations of fair lending regulations and a 2016 consent order. As previously covered by InfoBytes, the CFPB filed a complaint against the defendant (the third action taken against the defendant by the CFPB) for allegedly violating the terms of a 2016 consent order related to false claims about its lending program. The 2016 consent order alleged that the defendant engaged in deceptive practices by misrepresenting, among other things, the fees it charged, the loan products that were available to consumers, and whether the loans would be reported to credit reporting companies, in violation of the CFPA, TILA, and Regulation Z (covered by InfoBytes here). According to the September 8 complaint, the defendants continued with much of the same illegal and deceptive marketing that was prohibited by the 2016 consent order. Among other things, the complaint alleged that the defendants violated the terms of the 2016 consent order and various laws by: (i) deceiving consumers about the benefits of repeat borrowing; and (ii) failing to provide timely and accurate adverse-action notices, which is in violation of ECOA and Regulation B.

    The settlement prohibits the defendant from: (i) making new loans; (ii) collecting on outstanding loans to harmed consumers; (iii) selling consumer information; and (iv) making misrepresentations when providing loans or collecting debt or helping others that are doing so. The order also imposes a $100,000 civil money penalty based on the defendant’s inability to pay.

    Federal Issues CFPB Enforcement CFPA TILA ECOA Regulation Z Regulation B Consumer Finance Fair Lending Online Lending UDAAP Deceptive Courts

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  • FDIC updates videos on the mortgage servicing rules

    On December 17, the FDIC announced that it updated the technical assistance videos on the mortgage servicing rules. According to the announcement, the information in the five videos provides a high-level overview, which is intended to help FDIC-supervised institutions understand and comply with the mortgage servicing rules. The announcement also noted that the videos incorporate the 2016 Mortgage Servicing Rule and the 2016 Fair Debt Collection and Practices Act Interpretive Rule, and that the video series generally focus on the small servicer, as defined in Regulation Z. Highlights of each video include, among other things: (i) an overview of mortgage servicing and information for determining whether a servicer qualifies as a small servicer under Regulation Z (Video 1); (ii) key provisions for which small servicers do not have an exception (Video 2); (iii) an overview of some of the requirements that apply to large servicers and not small servicers (Video 3); (iv) information regarding successors in interest (Video 4); and (v) information and examples related to developing a compliance management system (Video 5).

    Bank Regulatory Federal Issues FDIC Mortgages Mortgage Servicing Regulation Z

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  • CFPB publishes fall 2021 rulemaking agenda

    Agency Rule-Making & Guidance

    On December 13, the Office of Information And Regulatory Affairs released the CFPB’s fall 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau plans to pursue during the period from November 2, 2021 to October 31, 2022. Additionally, the Bureau stated that the latest agenda reflects continued rulemakings intended to further its consumer financial protection mission and help advance the country’s economic recovery from the Covid-19 pandemic. Promoting racial and economic equity and supporting underserved and marginalized communities’ access to fair and affordable credit continue to be Bureau priorities.

    Key rulemaking initiatives include:

    • Small Business Rulemaking. This fall, the Bureau issued its long-awaited proposed rule (NPRM) for Section 1071 regulations, which would require a broad swath of lenders to collect data on loans they make to small businesses, including information about the loans themselves, the characteristics of the borrower, and demographic information regarding the borrower’s principal owners. (Covered by a Buckley Special Alert.) The NPRM comment period goes through January 6, 2022, after which point the Bureau will review comments as it moves to develop a final rule. Find continuing Section 1071 coverage here.
    • Consumer Access to Financial Records. The Bureau noted that it is working on rulemaking to implement Section 1033 of Dodd-Frank in order to address the availability of electronic consumer financial account data. The Bureau is currently reviewing comments received in response to an Advance Notice of Proposed Rulemaking (ANPR) issued fall 2020 regarding consumer data access (covered by InfoBytes here). Additionally, the Bureau stated it is monitoring the market to consider potential next steps, “including whether a Small Business Review Panel is required pursuant to the Regulatory Flexibility Act.”
    • Property Assessed Clean Energy (PACE) Financing. As previously covered by InfoBytes, the Bureau published an ANPR in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA (as required by Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which amended TILA to mandate that the Bureau issue certain regulations relating to PACE financing). The Bureau noted that it continues “to engage with stakeholders and collect information for the rulemaking, including by pursuing quantitative data on the effect of PACE on consumers’ financial outcomes.”
    • Automated Valuation Models (AVM). Interagency rulemaking is currently being pursued by the Bureau, Federal Reserve Board, OCC, FDIC, NCUA, and FHFA to develop regulations for AVM quality control standards as required by Dodd-Frank amendments to FIRREA. The standards are designed to, among other things, “ensure a high level of confidence in the estimates produced by the valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for June 2022.
    • Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued a final rule on December 7 to facilitate the transition from LIBOR for consumer financial products, including “adjustable-rate mortgages, credit cards, student loans, reverse mortgages, [and] home equity lines of credit,” among others. The final rule amended Regulation Z, which implements TILA, to generally address LIBOR’s eventual cessation for most U.S. dollar settings in June 2023, and establish requirements for how creditors must select replacement indices for existing LIBOR-linked consumer loans. The final rule generally takes effect April 1, 2022.
    • Reviewing Existing Regulations. The Bureau noted in its announcement that it decided to conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), and referred to a notice and request for comments issued last month (covered by InfoBytes here), which solicited public comments on its plans to assess the effectiveness of the HMDA Rule. Additionally, the Bureau stated that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009, and that “[a]fter considering the statutory review factors and public comments,” it “determined that the CARD Act rules should continue without change.”

    Notably, there are 14 rulemaking activities that are listed as inactive on the fall 2021 agenda, including rulemakings on overdraft services, consumer reporting, student loan servicing, Regulation E modernization, abusive acts and practices, loan originator compensation, and TILA/RESPA mortgage disclosure integration.

    Agency Rule-Making & Guidance CFPB Covid-19 Small Business Lending Section 1071 Consumer Finance PACE Programs AVMs Dodd-Frank Section 1033 Regulation Z LIBOR HMDA RESPA TILA CARES Act Debt Collection EGRRCPA Federal Reserve OCC FDIC NCUA FHFA Bank Regulatory FIRREA CARD Act

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