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On July 20, the CFPB released its Spring 2017 rulemaking agenda. The agenda was last updated in Fall 2016. The summer release date, and the fact that certain deadlines listed in the updated agenda have already passed, indicates that the agenda’s release may have been delayed after the CFPB drafted it. The following aspects of the updated agenda are particularly noteworthy:
- Regulation Reviews: The Bureau plans to begin “the first in a series of reviews of existing regulations that we inherited from other agencies through the transfer of authorities under the Dodd-Frank Act,” noting that “other federal financial services regulators have engaged in these types of reviews over time, and believe that such an initiative would be a natural complement to our work to facilitate implementation of new regulations.” The Bureau has formed “an internal task force to coordinate and deepen the agency’s focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens….” The agenda lists “pre-rule activities” as continuing through September 2017. Separately, the Bureau notes its ongoing assessments of the effectiveness of the Mortgage Servicing Rules, the Ability-to-Repay/Qualified Mortgage Rule, and the Remittance Transfer Rule pursuant to the Dodd-Frank Act’s five-year lookback provision.
- Small Dollar Lending: The Bureau reports that it received more than one million comments on its June 2016 proposed rule to impose ability-to-repay requirements for payday, vehicle title, and similar installment loans. The Bureau states that it “continue[s] to believe that the concerns articulated in the [proposed rule] are substantial” but does not provide an expected release date for a final rule.
- “Larger Participants” in Installment Lending: The agenda lists September 2017 as the expected release date for “a proposed rule that would define non-bank ‘larger participants’ in the market for personal loans, including consumer installment loans and vehicle title loans.” Designation as a larger participant brings a non-bank entity within the CFPB’s supervisory jurisdiction. The agenda indicates that a companion rule requiring payday, vehicle title lenders, and other non-bank entities to register with the Bureau is also underway, as noted below.
- Debt Collection: In July 2016, the Bureau released an outline of proposals under consideration for debt collection and convened a panel under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau notes that, “[b]uilding on feedback received through [that] panel, we have decided to issue a proposed rule later in 2017 concerning debt collectors’ communications practices and consumer disclosures.” The agenda states that a proposed rule is expected in September 2017. The Bureau also states that, in a departure from the July 2016 outline of proposals, the Bureau “intend[s] to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”
- Overdrafts: The Bureau states that the current opt-in regime “produces substantially different opt-in rates across different depository institutions” and that its “supervisory and enforcement work indicates that some institutions are aggressively steering consumers to opt in.” The Bureau reports that it is “engaged in consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.” The agenda lists “pre-rule activities” as continuing through June 2017.
- Small Business Lending: The agenda lists “pre-rule activities” on the implementation of the small business data reporting provisions of the Dodd-Frank Act as continuing through June 2017. Specifically, the agenda states that, at this juncture, the CFPB “is focusing on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.”
- HMDA & ECOA Amendments: The agenda lists October 2017 as the expected release date for the April 2017 proposed ECOA amendments to clarify requirements for collecting information on ethnicity, race, and sex, but does not list an expected release date for finalization of the April 2017 proposed technical corrections to the 2015 HMDA rule, or the July 2017 proposed amendments to the 2015 HMDA rule’s requirements for reporting home equity lines of credit.
- TRID/Know Before You Owe Amendments: The agenda lists March 2018 as the expected release date for finalization of the July 2017 proposed rule addressing the “black hole” issue, which is discussed in our special alert.
- Mortgage Servicing Amendments: The Bureau states that it expects to issue a proposal in September 2017 “to make one or more substantive changes to the rule in response to . . . concerns” raised by the industry.
- Arbitration: Interestingly, the agenda states that the Bureau’s final rule on mandatory arbitration clauses, which was released this month to significant controversy, was not expected until August.
- Non-Bank Registration: The Bureau states that it is “considering whether rules to require registration of [installment lenders] or other non-depository lenders would facilitate supervision, as has been suggested to us by both consumer advocates and industry groups.”
- Prepaid Cards: The agenda does not provide an expected release date for finalization of the June 2017 proposed amendments addressing error resolution and limitations on liability, application of the rule’s credit-related provisions to digital wallets, and other issues.
- Credit Card Agreement Submission: The Bureau is “considering rules to modernize our database of credit card agreements to reduce burden on issuers that submit credit card agreements to us and make the database more useful for consumers and the general public.” The agenda lists “pre-rule activities” as continuing through October 2017.
On July 17, the ABA and CFPB announced a joint webinar on August 8 at 2:00 pm EDT, which will instruct compliance, operations, and loan processing professionals on how to use the new platform for submitting HMDA data. The webinar will provide an overview of the new tool and data collection process that all financial institutions must use to submit HMDA data beginning January 1, 2018 for data collected during 2017 and going forward.
Notably, however, on July 14, the CFPB issued a request for comments on proposed amendments to its HMDA reporting threshold for calendar years 2018 and 2019 to ease the burden on small-volume lenders. The comment period ends July 31, 2017. (See previous InfoBytes summary here.)
On July 13, Representative David Kustoff (R-Tenn.) introduced legislation intended to decrease costs and delays when obtaining a mortgage by reducing appraisal requirements. As set forth in a July 13 press release issued by Rep. Kustoff’s office, the Securing Access to Affordable Mortgage Act of 2017 (H.R. 3221) would (i) ease “unfair” appraisal requirements, which would benefit rural communities where there is a demonstrated lack of qualified appraisers, and (ii) assist prospective homebuyers by decreasing costs and delays. H.R. 3221 would increase access to affordable mortgages by excluding loans of $250,000 or less from property appraisal requirements through new exemptions under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the Truth in Lending Act.
As previously discussed in InfoBytes, earlier this year several financial agencies jointly issued an Interagency Advisory to address concerns regarding the shortage of certified and licensed appraisers, particularly in rural areas.
On July 20, the Senate Banking Committee will hold a hearing on mortgage reform for small lenders. The hearing, entitled “Housing Finance Reform: Maintaining Access for Small Lenders,” will feature witnesses from the American Bankers Association, the Credit Union National Association, the Independent Community Bankers of America, the National Association of Federally-Insured Credit Unions, the Community Mortgage Lenders of America, and the Community Home Lenders Association.
On July 13, a federal judge in the U.S. District Court for the Western District of Kentucky issued an opinion holding that a safe harbor provision for affiliated business arrangements under Section 8(c)(4) of RESPA protects a Louisville law firm's relationship with a string of now-closed title insurance agencies. (See CFPB v. Borders and Borders, Plc, No. 3:13-cv-01047-CRS-DW (W.D. Ky. July 13, 2017)). In 2013, the CFPB alleged the firm violated RESPA by paying kickbacks for real estate settlement referrals through a network of joint ventures with the principals of nine title insurance companies. (See previous InfoBytes summary here.) The judge granted the firm’s motion for summary judgment on only one safe harbor question, stating that the firm’s agreements with the title insurance agencies qualified as “affiliated business arrangements” because it “disclosed the relationship…, the customers could reject the referral, and the Bureau failed to show that the [title insurance companies] received anything of value beyond their ownership interests.”
The judge rejected the firm's claim that the CFPB cannot seek disgorgement as a remedy and further declined to address the firm’s ultra vires argument that the CFPB is an unconstitutional agency and therefore lacks legal authority to bring suit, stating that the en banc decision in PHH Corp. v. CFPB has not yet been issued.
Notably, however, the judge appeared to suggest that case could be appealed because the firm’s other arguments fail to qualify for RESPA safe harbors under Sections 8(c)(1) and 8(c)(2).
On July 11, Connecticut Governor Dannel Malloy signed into law Public Act No. 17-233 (H.B. 7141), which makes various revisions to the state’s banking laws. Among other things, the law (i) applies certain mortgage servicers’ and student loan servicers’ prohibited acts to other licensees; (ii) requires non-depository licensees to maintain and enforce compliance policies and procedures; (iii) allows the banking commissioner to require the use of electronic bonds for licensed or registered individuals to participate in the Nationwide Mortgage Licensing System; (iv) reduces pre-licensing education requirements for mortgage loan originators, loan processors, and underwriters; and (v) sets limits for money transmitters regarding virtual currency transactions and timeframes for transmitting money. The law takes effect October 1, 2017, with provisions relating to compliance policies and procedures taking effect July 1, 2018, and pre-licensing education requirements taking effect January 1, 2019.
Following up on comments submitted to the CFPB on its proposal to amend the 2015 HMDA rule (see previous InfoBytes coverage here), the American Bankers Association (ABA)—along with state banking associations representing all 50 states and Puerto Rico—sent a letter on July 12 to the Bureau requesting that the new “complex” and “substantive” requirements scheduled to take effect January 1, 2018 be delayed to allow banks time to comply. The associations claim the Bureau (i) failed to sufficiently conduct industry research to identify and address questions and proposed solutions concerning the proposed changes, and (ii) inadequately addressed issues related to the protection of borrower data. The ABA also stresses that the software systems banks need to incorporate into their platforms to ensure compliant data collection will not be available in time “because the industry and systems vendors are still awaiting rule changes that will necessitate system adaptations.” The Bureau has been asked to announce its intention for a delay within the next month.
Special Alert: CFPB Finalizes Amendments to Know Before You Owe/TRID Rule and Proposes Additional Changes to Address “Black Hole”
On July 7, the CFPB issued amendments to the KBYO/TRID rule. The Bureau billed the changes as clarifying and technical in nature but stated that the final rule “also makes a limited number of additional substantive changes where the Bureau has identified discrete solutions to specific implementation challenges.” The rule becomes effective 60 days after it is published in the Federal Register, but compliance is not mandatory until October 1, 2018.
Importantly, however, instead of finalizing proposed amendments to address the “black hole” that prevents creditors from resetting tolerances using the Closing Disclosure except in very limited circumstances, the Bureau issued a concurrent proposal to address the issue. The proposal would close the black hole by allowing creditors to reset tolerances using the Closing Disclosure regardless of when closing is scheduled to occur, although the Bureau sought comment on whether doing so would have unintended consequences. Comments on the proposal must be received 60 days after it is published in the Federal Register.
If you have questions about the rule or other related issues, please visit our TRID Resource Center, Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
On June 13, PHH Corporation sent a letter to the U.S. Court of Appeals for the District of Columbia Circuit responding to a June 7 letter from the CFPB that stated RESPA’s three-year statute of limitations is not applicable in its enforcement action against the company. In its letter, the CFPB cited a decision in Kokesh v. SEC where the U.S. Supreme Court ruled that a five-year limit applies to civil penalties, and that, furthermore, “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.” The Bureau further supported its argument for a five-year limit by claiming that RESPA’s three-year statute of limitations provision applies only to “actions” brought in a “United States district court or any other court of competent jurisdiction,” and its administrative proceeding against the company for alleged mortgage kickbacks was not an “action” under RESPA.
In response, PHH countered that Section 2462 contains a “catch-all limitations period ‘[e]xcept as otherwise provided’ by Congress.” Thus, the D.C. Circuit panel was correct when it held that Congress “otherwise provided” a three-year statute of limitations under RESPA that applies to enforcement proceedings because in the “second part of Section 2614, the term ‘actions’ is not limited to actions brought in court.” PHH further asserts that Dodd-Frank “repeatedly uses the term ‘action’ to encompass court actions and administrative proceedings.”
As previously covered in InfoBytes, on May 24, the D.C. Circuit, sitting en banc, heard oral arguments on the constitutionality of the CFPB. It did not indicate that it was inclined to revisit the panel’s determination that the Bureau misinterpreted RESPA when applying it to PHH’s practices.
On June 13, Representatives Randy Hultgren (R-Ill.) and Gwen Moore (D-Wis.) introduced legislation to strengthen the Federal Home Loan Bank (FHLB) System by ensuring access to mortgage credit and affordable housing assistance for millions of consumers. As set forth in a June 15 press release issued by Rep. Hultgren’s office, the Housing Opportunity Mortgage Expansion (HOME) Act (H.R. 2890) would allow lenders to regain membership in the FHLB System provided they (i) joined before the Federal Housing Finance Agency (FHFA) proposed its recently finalized membership rule, and (i) are able to “demonstrate a commitment to residential mortgage activities.”
As previously discussed in InfoBytes, FHFA’s final rule added a revision intended to help streamline membership applications. However, Hultgren asserts that the rule “restricts FHLB membership eligibility” by excluding “captive insurers” under its definition of an “insurance company” thereby prohibiting membership. The HOME Act, Hultgren states, “would clarify that companies with a history and mission of supporting residential housing should be able to continue to serve our communities.”