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Fannie Mae to issue RFP for Title Acceptance pilot
On April 12, the FHFA announced plans to test a pilot program that would permit lenders to forego a lender’s title insurance policy or an attorney opinion letter for some refinance loans sold to Fannie Mae, aiming to lower closing costs for borrowers. Since the announcement, Fannie Mae has been working with the FHFA to develop a Title Acceptance pilot framework and has received interest from title, settlement service, and technology providers to join the pilot. In light of this, Fannie Mae declared its intention to release a Request for Proposal (RFP) by the end of the second quarter to identify and assess potential suppliers to participate in the pilot.
CFPB finalizes rule to change its supervision designation procedures for nonbanks
On April 16, the CFPB issued a procedural rule to change how the Bureau will designate nonbanks for supervision. Under the CFPA, the CFPB was authorized to supervise a nonbank covered person if the Bureau had reasonable cause to determine if the nonbank covered person was engaged in financial services-related conduct that posed a risk to consumers. In 2013, the CFPB issued a rule providing procedures to govern supervisory designation proceedings under this authority; in 2022, the CFPB published a final rule amending the procedural rule to allow it to publicize its resolution of any contested designation proceeding (covered by InfoBytes here). In late February 2024, the CFPB transitioned to a new organizational structure for its supervision and enforcement work, and this rule will reflect the technical changes of the new structure in the context of supervisory designation proceedings.
According to the Bureau, there were small differences between two separate provisions under the 2013 rule that allowed nonbanks to consent to the CFPB’s exercise of supervisory authority. The new procedural rule will combine these provisions and clarify a few points of distinction from the two original provisions, including (i) a consent agreement does not constitute an admission; and (ii) supervision durations following consent agreements can be negotiated on a case-by-case basis, instead of applying a default duration of two years.
Regarding the Supervision Director’s notice of reasonable cause, the rule will expand the possible methods of delivery to include other methods that are “reasonably calculated to give notice.” Additionally, the rule states that the initiating official may withdraw a notice, and that they may file a written reply to the notice recipient’s response, neither of which was not contemplated under the previous rule. The Bureau said these changes could allow for more transparency in the decision-making process.
Concerning a supplemental oral response, the Bureau noted under the previous rule, a respondent nonbank entity presented supplemental oral responses to the Associate Director for Supervision, Enforcement, and Lending. In light of the elimination of the Associate Director position pursuant to a recent reorganization that split the Division of Supervision, Enforcement, and Fair Lending into a Division of Enforcement and a Division of Supervision, the rule provided that the Director of the Bureau will assume the Associate Director’s adjudicative roles and supervision-related functions. Therefore, the Director will be responsible for issuing a decision and order subjecting an entity to the Bureau’s supervision or terminating a proceeding.
The rule further stipulated that (i) an additional time limit for mail and delivery services are no longer warranted, since email would be “generally instantaneous”; (ii) there will be a 13,000-word limit for the proceeding filings; (iii) any changes to time or word limits can be decided between the initiating official and the respondent with a notice to the Director and will be subject to change by the Director.
Regarding the confidentiality of proceedings, the rule maintained a process for the CFPB to decide whether to publicly release final decisions and orders, including orders entered as a result of respondent failing to file a response and therefore defaulting. The Bureau did note, however, consent agreements entered into between the initiating official and the respondent will not be subject to public release under the rule.
The rule also established an issue exhaustion requirement, requiring respondents to raise arguments they have in their written response to the Bureau to avoid waiving the argument in future proceedings. The Bureau will invite public comments which must be submitted 30 days after publication in the Federal Register, although the rule will be exempt from the notice-and-comment rulemaking requirements under the APA as a rule of agency organization, procedure, or practice. The rule will be effective upon publication to the Federal Register, and it will apply to proceedings pending on the effective date, unless the Director determined that it will be “not practicable.”
CFPB and European Commission convene for future oversight of consumer finance products
On April 11, the CFPB Director, Rohit Chopra, and the Commissioner for Justice and Consumer Protection of the European Commission, Didier Reynders, issued a joint statement announcing their intent to begin an informal dialogue between the CFPB and the European Commission on consumer financial protection issues. The agencies have already convened three staff-level meetings on the following topics: (1) BNPL and over-indebtedness, where the U.S. shared the FCRA framework and the European Commission discussed the differences in the BNPL industry’s evolution in their respective jurisdictions; (2) digital payment access and fraud, where they discussed fraud, the issue of nonbanks in payments, Big Tech’s involvement in consumer finance, and digital access for the unbanked; and (3) artificial intelligence, where the European Commission shared four pieces of legislation or regulations and two recent court judgments. The joint statement iterated their inputs: “Our staff have shared expertise, best practices, and lessons learned on an important set of issues. Jointly analyzing the expansion of Big Tech’s financial services offerings, and the attendant risks to consumer privacy and competition, has been highly productive.”
Washington enacts SB 6025 addressing certain lending practices
On March 25, the Governor of the State of Washington signed SB 6025 (the "Act”) into law. The Act would prohibit covered entities from (i) making loans disguised as personal property sale or leaseback transactions; (ii) offering cash rebates as a cover for installment sales; or (iii) making loans with interest rates or charges surpassing legal limits, among other things. The Act also amended portions of Washington State’s Consumer Loan Act (CLA). The Act would provide that non-bank services companies may be lenders under the CLA if such company would hold the “predominate interest in the loan” or “totality of the circumstances indicate that the [company] is the lender.” These changes will go into effect on June 6.
Trade groups sue Colorado Attorney General to block enforcement of law limiting out-of-state bank charges on consumer credit
On March 25, three trade groups filed a lawsuit in the U.S. District Court for the District of Colorado, against the Colorado Attorney General and the Administrator of the Colorado Uniform Consumer Credit Code to prevent enforcement of Section 3 of House Bill 23-1229, which was signed into law last year to limit out-of-state bank charges on consumer credit (the “Act”). As previously covered by InfoBytes, the Act amended the state’s Uniform Consumer Credit Code to opt out of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) provision that allowed state-chartered banks to charge the interest allowed by the state where they are located, regardless of the location of the borrower and regardless of conflicting out-of-state law. The Act would go into effect on July 1.
According to the complaint, the Act “far exceed[s]” the authority Congress granted Colorado under DIDMCA and would be deemed “invalid on its face.” Plaintiffs alleged that Colorado ignored the federal definition of where a loan was deemed to be “made,” imposing “its state interest-rate caps on any ‘consumer credit transaction[] in’ Colorado,” including “any loan to a Colorado consumer by any state-chartered bank that advertises on the internet in Colorado.” Plaintiffs further alleged that the Act’s opt out “is preempted by DIDMCA and violates the Supremacy Clause of the U.S. Constitution by attempting to expand the federally granted opt-out right to loans not actually ‘made in’ Colorado under federal law,” and “violates the Commerce Clause because it will impede the flow of interstate commerce and subject state-chartered banks to inconsistent obligations across different states.” The Plaintiffs also alleged that Colorado’s stated goal of combatting “predatory, payday-style lending” will not be accomplished through the opt out, as plaintiffs’ members are not payday lenders and offer “a wide variety of useful, familiar, everyday credit products” that “are provided at a range of rate and fee options, which sometimes—to account for credit risk—are above Colorado’s rate and fee caps, but within the rate caps allowed by DIDMCA.” Furthermore, plaintiffs warn that the Act “will prevent Plaintiffs’ members from offering these mainstream products to many Colorado consumers,” while “national banks will still offer these very same loan products to Colorado residents at interest rates in excess of Colorado’s interest-rate and fee caps.” Plaintiffs urged the court to issue a ruling stating that the Act “is void with respect to loans not ‘made in’ Colorado as defined by applicable federal law” and to enjoin Colorado from enforcing or implementing the Act with respect to those loans.
Borrower’s RESPA claim stays afloat in District Court
The U.S. District Court for the Southern District of Ohio, Eastern Division, granted in part and denied in part defendant mortgage servicer’s motion to dismiss claims for RESPA Qualified Written Requests violations. Defendant approved plaintiffs for a trial payment plan for their mortgage loan. After plaintiffs completed that plan, defendants sent an initial modification agreement with a misspelled plaintiff name. Plaintiffs notified defendant of the error but continued making payments pursuant to the initial modification agreement. Defendant then sent a corrected version which plaintiffs signed, and defendants recorded with the Delaware County Recorder’s office. However, defendants did not update the new terms in its billing system and, after realizing the agreement contained terms different from what it intended, sent a third version of the modification agreement to plaintiffs with an adjusted principal balance and interest rate. Plaintiffs refused to sign the third modified agreement, and defendants refused to honor the recorded version or accept payments, stating that plaintiffs were in default on their mortgage.
In making its judgement, the court considered how defendant handled plaintiffs’ qualified written requests (QWR). Regarding defendant’s response to plaintiffs’ notice of error, plaintiffs claimed defendant did not conduct a reasonable investigation, inadequately explained the discrepancy between the modification agreements’ interest rates and fee charges to their account, and entirely ignored the change in principal balances between the initial and the recorded modification agreements. Defendant argued that its conclusion, that no enforceable loan modification existed, would not change had it conducted the investigation. The court found that defendant could not bypass its responsibility to conduct a reasonable investigation, and that defendant did not address the difference in principal balance between the initial and recorded modification agreements.
On the issue of defendant’s response to plaintiffs’ request for information (RFI), plaintiffs claimed defendant’s response did not address their claims of missing records, nor did it mention that such records were unavailable. Plaintiffs also claimed defendant failed to produce requested documents. Refuting defendant’s argument that plaintiffs did not “even hint” that they suffered damages from the RFI portion of the QWR, the court found that plaintiffs’ damages were legally cognizable. However, the court dismissed plaintiffs’ claim as to the RFI because it did not satisfy the necessary standing requirements.
CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue
On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).
The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.
On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.
Senator Warren invites student loan servicer to testify before Congress
On March 18, Senator Elizabeth Warren (D-MA) sent a letter to a large student loan servicer, inviting its executives to testify at an upcoming hearing hosted by the Banking, Housing, and Urban Affairs Subcommittee on Economic Policy on April 10. The hearing will focus on the servicer’s performance, student loan borrowers’ experience with return to repayment, and the Public Service Loan Forgiveness (PSLF) program. The letter alleged the servicer “mishandl[ed]” borrowers return to repayment after the pandemic by impeding public servants’ access to PSLF relief, among other things. Senator Warren also alleged the servicer failed to perform “basic servicing functions” for PSLF borrowers which led to a backlog of public service workers’ forms eligible towards receiving credit on their student debts. The letter further alleged the servicer implemented a “call deflection scheme” to redirect borrowers' calls from customer service representatives. Testifying would give the servicer the chance to provide context to the allegations, Warren said.
Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case
On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).
The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.
CFPB releases consumer advisory for student borrowers notifying them of April deadline to cancel
On March 11, the CFPB published a consumer advisory notifying student loan borrowers that they may have an opportunity to cancel or receive credits toward the cancellation of their student loans but some borrowers will need to consolidate their loans by April 30 in order to obtain the benefit. The Department of Education has implemented a “one-time adjustment” to help borrowers receive credit toward federal student loan cancellation. This adjustment is designed to enable the counting of more payments, including all payments made on federally managed loans since July 1, 1994, as well as certain periods of deferment, economic hardship, and forbearance. Generally, federal student loans are eligible for Income Driven Repayment (IDR) plans, which offer loan cancellation after 10, 20, or 25 years of qualifying payments, or after 10 years for those pursuing Public Service Loan Forgiveness (PSLF), provided other eligibility criteria are met. The Bureau also noted that consolidation is free, warning against scammers who would charge for that service.