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CFPB urged to regulate fee-based EWA products as credit subject to TILA
On October 12, CFPB Director Rohit Chopra received a letter from “96 consumer, labor, civil rights, legal services, faith, community and financial organizations and academics,” which urged the Bureau to rescind its earned wage access (EWA) advisory opinion and sandbox approval, and requested that the Bureau regulate fee-based EWA products as credit subject to TILA. As previously covered by InfoBytes, last November 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, 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).
The letter asserted that “[r]egardless of how they are structured, the essence of virtually all of these programs is that a third party advances funds to the consumer before the consumer’s regular payday and is repaid later in some fashion out of the paycheck. That is a loan. Methods to verify that the consumer has earned wages coming to them are simply a form of underwriting or security. . . . Similarly, the involvement of the employer or the use of payroll deduction does not mean that an advance is not a loan.” The letter raised several concerns, including that the Bureau’s position which views EWA products “as something other than loans leads to evasions of federal credit laws, such as [TILA], and of state laws, in particular usury laws.” Moreover, the letter stressed that this reasoning could have an impact on fair lending laws and “could be used in an attempt to weaken the scope of ECOA and its protections against discrimination against communities of color and other protected classes.” The letter stressed that asking for EWA products to be treated as credit does not mean they should not exist, but rather that the Bureau should examine fee-based EWA providers under its payday lending supervisory authority.
FDIC announces Pennsylvania disaster relief
On September 16, the FDIC issued FIL-67-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Pennsylvania affected by Hurricane Ida. The FDIC acknowledged the unusual circumstances faced by institutions in affected areas, and suggested institutions take certain steps to meet the needs of their communities and keep the FDIC informed of business impacts. These steps include (i) working with borrowers to adjust or alter loan terms in a safe and sound manner; (ii) identifying potential community development activities to revitalize or stabilize the disaster area (which the FDIC noted may receive favorable CRA consideration); (iii) monitoring potentially impacted municipal securities and loans; (iv) notifying the FDIC of delays in meeting filing and publishing requirements, or in the event temporary banking facilities are needed; and (v) processing consumer requests under Regulation Z for a waiver or modification of the three-day rescission period for dwelling-secured loans in the event of a “bona fide personal financial emergency.”
FDIC announces North Carolina disaster relief
On September 13, the FDIC issued FIL-65-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of North Carolina affected by remnants of Tropical Storm Fred. The FDIC acknowledged the unusual circumstances faced by institutions in affected areas, and suggested institutions take certain steps to meet the needs of their communities and keep the FDIC informed of business impacts. These steps include (i) working with borrowers to adjust or alter loan terms in a safe and sound manner; (ii) identifying potential community development activities to revitalize or stabilize the disaster area (which the FDIC noted may receive favorable CRA consideration); (iii) monitoring potentially impacted municipal securities and loans; (iv) notifying the FDIC of delays in meeting filing and publishing requirements, or in the event temporary banking facilities are needed; and (v) processing consumer requests under Regulation Z for a waiver or modification of the three-day rescission period for dwelling-secured loans in the event of a “bona fide personal financial emergency.”
CFPB alleges online lender violated 2016 consent order
On September 8, the CFPB filed a complaint against a California-based online lender (defendant) for allegedly violating the terms of a 2016 consent order related to false claims about their lending program. As previously covered by InfoBytes, the 2016 consent order alleged the defendant engaged in deceptive practices by misrepresenting, among other things, the fees 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. According to the September 8 complaint, filed in the U.S. District Court for the Northern District of California, 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 alleges that the defendants violated the terms of the consent order and various laws by: (i) deceiving consumers regarding the benefits of repeat borrowing; and (ii) failing to provide timely and accurate adverse-action notices. The Bureau seeks injunctive relief, damages, consumer restitution, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA, the Bureau’s 2016 Consent Order, ECOA, or any provision of “Federal consumer financial law.”
Fed extends TILA disclosure requirements
On September 1, the Federal Reserve Board adopted a proposal to extend the recordkeeping and disclosure requirements associated with the TILA, implemented by Regulation Z for three years, with revision. While Dodd-Frank transferred rule-writing authority for Fed-supervision institutions under Regulation Z to the CFPB, the Fed is taking action to “minimize burden on small entities through tailored supervision, including through a risk-focused consumer compliance supervision program and an examination frequency policy that provides for lengthened time between examinations for institutions with a lower risk profile.” As previously covered by InfoBytes, the Board proposed in April to revise FR Z (OMB No. 7100-0199) to: (i) include burden connected to disclosure requirements in “rules issued by the Bureau since the Board’s last Paperwork Reduction Act (PRA) submission, as well as for one information collection for which the Bureau estimates burden” but the Board formerly did not; (ii) break out and clarify “burden estimates” that were formerly consolidated; and (iii) eliminate burden associated with some requirements due to the Bureau accounting for burden for the entire industry, or because the burden is now deemed a part of an institution’s usual and customary business practices. The revisions will be implemented as proposed and are effective immediately.
CFPB settles with ISA provider on unfair practices
On September 7, the CFPB announced a settlement with a Virginia-based non-profit income share agreement (ISA) provider, and its affiliated companies, to resolve allegations that the company engaged in deceptive acts with respect to its ISAs product to finance postsecondary education, in violation of the Consumer Financial Protection Act, among other things. The CFPB alleged that the company engaged in unfair, deceptive, or abusive acts or practices by misrepresenting that its ISAs are not loans and do not create debt, failing to provide certain required disclosures, and imposing unlawful prepayment penalties on private education loans.
Under the terms of the consent order, the company is required to: (i) cease stating that its ISAs are not loans or do not create debt for consumers; (ii) provide the disclosures required by the Truth in Lending Act and its implementing Regulation Z for closed-end credit; (iii) “continue their practice of not objecting to any discharge of a student’s ISA in bankruptcy”; and (iv) reform its ISA contracts to remove prepayment penalties on private education loans and, for some ISAs, recalculate the payment caps to eliminate the prepayment penalty. The order does not impose a civil money penalty.
CFPB releases TILA and CARD Act specifications
On August 20, the CFPB released new technical specifications regarding credit card agreement and data submission compliance requirements under TILA and the CARD Act (Regulation Z). Credit card issuers will utilize the Bureau’s website to submit: (i) Terms of Credit Card Plans (TCCP) Survey data (for the deadline of February 14, 2022); (ii) quarterly credit card agreement submissions (for the deadline of January 31, 2022); and (iii) annual reports connected to college credit card marketing agreements and data (for the deadline of March 31, 2022). According to the announcement, for the most recent TCCP Survey cycle that started on January 31, 83 percent of TCCP Survey submissions were made via the Bureau’s “Collect” website on a voluntary basis, which simplified the Survey submission process in a number of ways, including by minimizing confusing, irrelevant, or duplicative questions and providing an “audit trail” to track submissions. In addition, the Bureau understands Collect to be faster both for issuers and for Bureau processing, which “has led to the faster posting of the TCCP Survey results” and enhances the “public’s ability to use the data in a timely manner.” The Bureau believes that these benefits “would be increased if all TCCP Survey respondents used Collect, and that any additional burden on Survey respondents as a result of using Collect would be minimal.” As previously covered by InfoBytes, the CFPB released the final rule revising the dollar amounts for provisions implementing the TILA and amendments to TILA, including CARD Act, the Home Ownership and Equity Protection Act of 1994, and Dodd-Frank’s ability-to-repay and qualified mortgage provisions. The recently released rule took effect upon publication in the Federal Register.
CFPB releases Juneteenth timing guidance rule
On August 5, the CFPB clarified that it will not penalize mortgage lenders that did not adjust some time-sensitive borrower protections for Juneteenth, noting that the quick enactment of the law designating the holiday left the industry “unsure of how to treat the day for purposes of regulatory compliance.”
The CFPB released an interpretive rule to provide guidance on the impact of the new Juneteenth federal holiday on Regulation Z timing requirements related to the provision of the TRID Closing Disclosure at least three “business days” prior to closing and a consumer’s right to rescind a transaction until midnight on the third “business day” following settlement.
On the afternoon of June 17, President Biden signed a bill establishing June 19, Juneteenth, as a federal holiday. The bill amends 5 U.S.C. § 6103(a) which codifies legal public holidays. Because June 19 fell on a Saturday this year, the holiday was observed on Friday, June 18.
The timing requirements for purposes of delivering the Closing Disclosure prior to closing and for establishing a consumer’s rescission period are measured in “specific business days” defined as “all calendar days except Sundays and legal public holidays” as specified in 5 U.S.C. § 6103(a). Thus, for some transactions, Saturday June 19 counted as a business day when Closing Disclosures were issued or the rescission period began, but no longer counted as a business day at the end of the relevant time period. In its interpretive rule, the Bureau states that it interprets the definition of “specific business day” to mean the “the version of the definition in effect when the relevant time period begins.” Accordingly, for the 2021 Juneteenth holiday and the affected timing requirements, if the relevant time period began on or before June 17, 2021, then June 19, 2021 is a business day. If the relevant time period began after June 17, 2021, then June 19, 2021 is counted as a federal holiday and not a business day for purposes of the specific business day definition.
As such, it appears that the Bureau will not penalize mortgage lenders for not adding an additional day to the applicable waiting periods to the extent that the waiting periods began on or before the day President Biden established Juneteenth as a federal holiday, while also noting the obvious that nothing prohibits creditors from providing longer wait periods. As an interpretive rule to advise the public prospectively how an agency proposes to exercise a discretionary power, the Bureau’s guidance is exempt from the notice and comment provisions of the Administrative Procedures Act.
CFPB updates mortgage servicing small entity compliance guide
On August 4, the CFPB updated the mortgage servicing Small Entity Compliance Guide to include guidance on the 2021 Mortgage Servicing COVID-19 Final Rule and the 2020 Mortgage Servicing COVID-19 Interim Final Rule. In June, the Bureau finalized amendments to certain federal mortgage servicing regulations, which added provisions applicable to borrowers as federal foreclosure protections ended. As previously covered by InfoBytes, the CFPB previously released new FAQs regarding the Mortgage Servicing Rule and Regulation X and Regulation Z relating to escrow account guidance and analysis. The guide clarifies the servicing file requirements under the existing mortgage servicing rules and provides guidance regarding compliant use of multiple electronic systems. The guide also reflects updates made to the final rule regarding, among other things: (i) loss mitigation foreclosure protections; (ii) loss mitigation incomplete application requirements; (iii) and early intervention live contact. The final rule provisions addressed in the guide are temporary and phase out over time. Miscellaneous administrative changes have been made throughout the guide, as well.
CFPB publishes rulemaking agenda
On June 11, the Office of Information and Regulatory Affairs released the CFPB’s spring 2021 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters the Bureau is “currently pursuing under interim leadership pending the appointment and confirmation of a permanent Director.” Any changes made by the new permanent director will be reflected in the fall 2021 rulemaking agenda. Additionally, the Bureau indicates that it plans to continue to focus resources on actions addressing the adverse impacts to consumers due to the ongoing Covid-19 pandemic, and highlighted an interim final rule issued in April that addresses certain debt collector conduct associated with the CDC’s temporary eviction moratorium order (covered by InfoBytes here). The Bureau will also continue to take concrete steps toward furthering the agency’s “commitment to promoting racial and economic equity.”
Key rulemaking initiatives include:
- Small Business Rulemaking. Last September, the Bureau released a Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) outline of proposals under consideration, convened an SBREFA panel last October, and released the panel’s final report last December (covered by InfoBytes here and here). The Bureau reports that it anticipates releasing a notice of proposed rulemaking (NPRM) for the Section 1071 regulations this September to “facilitate enforcement of fair lending laws as well as enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”
- Consumer Access to Financial Records. The Bureau notes that it is considering 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 last fall regarding consumer data access (covered by InfoBytes here).
- 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. The Bureau notes 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, [ ] avoid conflicts of interest, require random sample testing and reviews,” and account for any other appropriate factors. An NPRM is anticipated for December.
- Amendments to Regulation Z to Facilitate LIBOR Transition. As previously covered by InfoBytes, the Bureau issued an NPRM in June 2020 to amend Regulation Z to address the sunset of LIBOR, and to facilitate creditors’ transition away from using LIBOR as an index for variable-rate consumer products. A final rule is expected in January 2022.
- Reviewing Existing Regulations. The Bureau notes in its announcement that while it will conduct an assessment of a rule implementing HMDA (most of which took effect January 2018), it will no longer pursue two HMDA proposed rulemakings previously listed in earlier agendas related to the reporting of HMDA data points and public disclosure of HMDA data. Additionally, the Bureau states that it finished a review of Regulation Z rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 and plans to publish any resulting changes in the fall 2021 agenda.
The Bureau’s announcement also highlights several completed rulemaking items, including (i) a final rule that formally extended the mandatory compliance date of the General Qualified Mortgage final rule to October 1, 2022 (covered by InfoBytes here); (ii) proposed amendments to the mortgage servicing early intervention and loss mitigation-related provisions under RESPA/Regulation X (covered by a Buckley Special Alert) (the Bureau anticipates issuing a final rule before June 30, when the federal foreclosure moratoria are set to expire); and (iii) a proposed rule (covered by InfoBytes here), which would extend the effective date of two final debt collection rules to allow affected parties additional time to comply due to the ongoing Covid-19 pandemic (the Bureau plans to issue a final rule in June on whether, and for how long, it will extend the effective date once it reviews comments).