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Kraninger outlines plan to extend GSE patch, previews QM Rule
According to sources, on January 17, CFPB Director Kathy Kraninger sent a letter to prominent members of Congress announcing plans to extend the qualified mortgage patch—which exempts loans eligible for purchase by Fannie Mae and Freddie Mac (GSEs) from the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income (DTI) ratio—for a short period beyond its current January 2021 expiration. As previously covered by a Buckley Special Alert, the Bureau issued an Advance Notice of Proposed Rulemaking last July to solicit feedback on, among other things, whether the DTI limit should be altered and how Regulation Z and the Ability to Repay/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Kraninger notes in her letter that the Bureau plans to propose an amendment to the QM Rule to replace DTI ratios as a factor in mortgage underwriting with an alternative measure of credit risk. One alternative, Kraninger says, could be to use pricing thresholds based on the difference between the loan’s annual percentage rate and the average prime offer rate for a similar loan. The Bureau is also considering adding a “seasoning” approach through a separate rulemaking process to give safe harbor to certain loans when the borrower has made timely payments for a certain period, Kraninger states. Sources report that the Bureau plans to issue a Notice of Proposed Rulemaking no later than May.
CFPB releases TILA, EFTA, and CARD Act annual report
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.
CFPB releases TRID guidance for construction loans
On December 18, the CFPB published two guides to assist with TILA-RESPA Integrated Disclosure Rule (TRID) compliance for construction-only and construction-permanent loans. The Bureau notes that under Regulation Z, “a creditor may treat a construction-permanent loan as either one, combined transaction or as two or more separate transactions.” Disclosure options are (i) one, combined loan estimate along with one, combined closing disclosure; or (ii) two or more loan estimates and two or more closing disclosures for each phase of the construction-permanent loan. Appendix D in both the Combined Guide and the Separate Guide provides methods that may be used for estimating construction phase financing disclosures. As previously covered by InfoBytes, the Bureau previously released FAQs in May concerning the application of TRID to construction loans.
CFPB releases annual HMDA and TILA adjustments
On December 18, the CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules take effect on January 1, 2020.
Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $46 million to $47 million, thereby exempting institutions with assets of $47 million or less as of December 31, from collecting and reporting HMDA data in 2020.
TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.167 billion to $2.202 billion, thereby exempting creditors with assets of $2.202 billion or less as of December 31, from the requirement to establish escrow accounts for HPMLs in 2020.
CFPB says some organizations won’t need to comply with screening and training requirements for temporary MLOs
On November 15, the CFPB issued an interpretive rule, which clarifies the screening and training requirements for mortgage loan originators (MLOs) with temporary authority under Regulation Z. As previously covered by InfoBytes, Section 106 of Economic Growth, Regulatory Relief, and Consumer Protection Act amends the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) to establish temporary authority, providing a way for eligible MLOs who have applied for a new state loan originator license to act as a loan originator in the application state while the state considers the application. Regulation Z currently requires organizations to perform criminal screenings (including whether the applicant has been convicted of enumerated felonies within specified timeframes) and training requirements before permitting the individual to originate loans. According to the Bureau, Regulation Z is “ambiguous” as to whether these requirements would apply to MLOs with temporary authority and therefore, the interpretive rule clarifies that an organization is not required to conduct the criminal screening or ensure the training of any MLOs with temporary authority under the SAFE Act.
The interpretive rule is effective November 24, the same day the SAFE Act amendments take effect.
Agencies adjust threshold for Regulations Z and M
On October 31, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) to credit transactions, as required by the Dodd-Frank Act (published in the Federal Register here and here). Each year the thresholds must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2020, based on the annual percentage increase in the CPI-W, is now $58,300 or less, except for private student loans and loans secured by real property, which are subject to TILA regardless of the amount.
CFPB issues summer 2019 Supervisory Highlights
On September 13, the CFPB released its summer 2019 Supervisory Highlights, which outlines its supervisory and enforcement actions in the areas of automobile loan origination, credit card account management, debt collection, furnishing, and mortgage origination. The findings of the report cover examinations that generally were completed between December 2018 and March 2019. Highlights of the examination findings include:
- Auto loan origination. The Bureau noted that one or more examinations found that guaranteed asset protection (GAP) products were sold to consumers with low loan-to-value (LTV) loans, resulting in those consumers purchasing a product that was not beneficial to them. The Bureau concluded these sales were an abusive practice, as “the lenders took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.”
- Credit card account management. The Bureau found several issues with credit card account servicing, including violations of Regulation Z for failing to clearly and conspicuously provide disclosures required by triggering terms in online advertisements and for offsetting consumers’ credit card debt against funds that the consumers had on deposit with the issuers without sufficient indication that the consumer intended to grant a security interest in those funds.
- Debt collection. The Bureau noted violations of the FDCPA’s prohibition on falsely representing the amount due when debt collectors claimed and collected interest that was not authorized by the underlying contracts between the debt collectors and the creditors.
- Credit information furnishing. The Bureau found multiple violations of the FCRA, including furnishers failing to complete dispute investigations within the required time period and failing to promptly send corrections or updates to all applicable credit reporting agencies after a determination that the information was no longer accurate.
- Mortgage origination. The Bureau noted that creditors had violated Regulation Z by disclosing inaccurate APRs for closed-end reverse mortgages and also by using a unit-period of one month instead of one year to calculate the total annual loan cost (TALC) rate and the future value of all advances, leading to inaccurate TALC disclosures.
The report notes that in response to most examination findings, the companies have taken, or are taking, remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations.
Lastly, the report also highlights the Bureau’s recently issued rules and guidance.
3rd Circuit: Proof of written agreement needed for TILA claims
On August 20, the U.S. Court of Appeals for the 3rd Circuit concluded that a plaintiff failed to adequately allege the existence of a written agreement for his deductible payment plan and therefore, his surgery institute did not violate TILA’s disclosure requirements. According to the opinion, the day before his surgery, the surgery institute orally agreed to accept a partial deductible payment and agreed to permit the plaintiff to pay the remaining deductible requirements in monthly installments. The plaintiff received two emails, one confirming the initial payment and the other confirming the payment plan and listing the plaintiff’s credit card. The institute performed the surgery, but the plaintiff failed to make any further payments on the deductible. Instead, the plaintiff filed an action against the institute alleging it violated TILA by extending credit and failing to provide the required disclosures. The district court granted judgment on the pleadings for the institute, concluding that the plaintiff' failed to establish a written agreement for the extension of credit. The court also issued sanctions, in the form of attorneys’ fees, against the plaintiff’s counsel, reasoning the counsel could have reasonably discovered the lack of written agreement and lack of payment before initiating the action.
On appeal, the 3rd Circuit affirmed in part and reversed in part in the district court’s judgment. The appellate court agreed with the district court that the plaintiff failed to establish the existence of a written agreement for credit with the institute, noting “the requirement of a written agreement [under TILA] is not satisfied by a ‘letter that merely confirms an oral agreement.’” But the appellate court noted that the district court erred in relying on an admission to that effect by plaintiff’s counsel during a telephone conference. Nonetheless, the error was “harmless” because the plaintiff failed to establish a written agreement was executed and signed, stating “[n]owhere does he allege that he signed a written agreement, and the [] email correspondence was merely ‘confirming’ the ‘previously discussed’ agreement." The appellate court then reversed the district court’s sanctions ruling, concluding it abused its discretion when it imposed them.
District Court allows case exploring whether cryptocurrency acquisitions are “cash-like” to proceed
On August 1, the U.S. District Court for the Southern District of New York allowed breach of contract and clear and conspicuous disclosure claims brought by a proposed class of consumers against a national bank to proceed, finding that ambiguity exists over whether credit card cryptocurrency purchases are “cash-like transactions.” The plaintiffs claimed that the bank breached their cardholder agreements when it changed the classification of cryptocurrency acquisitions from “purchases” to “cash advances” between January 23 and February 2, 2018. Plaintiffs contended that this change subjected cardholders to higher interest rates and transaction fees in violation of their cardholder agreements. Moreover, the plaintiffs claimed that the bank’s failure to clearly and conspicuously disclose the different types of transactions and varying rates, as well as its failure to provide advance notice of significant changes in its account terms and accurate disclosures in periodic account statements, violated TILA and Regulation Z.
The bank countered that no breach of contract occurred because cryptocurrency acquisitions are “cash-like transactions” that, under the cardholder agreement, are properly classified as cash advances. Specifically, the bank stated that because cryptocurrency can be a “medium of exchange, a measure of value, or a means of payment” under the definition of “cash,” it is therefore “cash-like.”
The court concluded that the plaintiffs offered a reasonable argument that purchases of cryptocurrency did not constitute cash advances. Plaintiffs argued that the contractual term “cash-like”—which was used in the cardholder agreement to describe a cash advance—referred only to financial instruments formally tied to physical, government-issued “fiat” currency, such as checks, money orders, and wire transfers. “Because, as plaintiffs plausibly allege, cryptocurrency does not imbue its holder with a legal right to any government-issued currency, acquisitions of cryptocurrency could not be classified as a cash-like transaction,” the court stated. As such, “[b]ecause plaintiffs have identified a reasonable interpretation of ‘cash-like transactions’ that would exclude purchases of cryptocurrency, the breach of contract claim survives the motion to dismiss.” The court also allowed plaintiffs’ “clear and conspicuous” disclosure claim under TILA to survive because the contract was not clear that purchases of cryptocurrency would result in cash advance fees. However, the court dismissed the plaintiffs’ remaining TILA claims, finding that (i) the bank did not change the contract terms themselves, but rather their application; and (ii) the periodic account statements did not inaccurately convey what the plaintiffs owed to the bank for those particular periods of time.
CFPB releases TRID FAQs on loan estimates
On July 31, the CFPB released FAQs to assist with TILA-RESPA Integrated Disclosure Rule (TRID Rule) compliance. The five new FAQs relate to providing loan estimates to consumers. Highlights include:
- If a consumer submits the six pieces of information (name, income, social security number, property address, estimate of the value of the property, and loan amount sought) that constitute an application under the TRID Rule, the creditor must ensure that a loan estimate is delivered or placed in the mail within three business days.
- A creditor cannot require the consumer to submit anything other than the six pieces of information that constitute an application under the TRID Rule as a condition to providing a loan estimate.
- A creditor cannot require a consumer to provide verifying documents in order to receive a loan estimate.
- If a consumer submits the six pieces of information that constitute an application, in order to receive a pre-approval or a pre-qualification letter, the creditor must also provide a loan estimate within three business days of receipt.
- A creditor may collection additional information, beyond the six pieces of information that constitute an application, it deems necessary to process a request for a mortgage loan, including a request for a pre-approval or pre-qualification letter.