Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFPB Releases Updated Compliance Management Procedures in Supervision and Examination Manual

    Agency Rule-Making & Guidance

    On August 30, the CFPB posted revisions to its Compliance Management Review Examination Procedures—part of its Supervision and Examination Manual—that is intended to provide guidance for institutions when developing and maintaining compliance management systems (CMS). The Bureau advises that to maintain legal compliance, institutions must integrate and support an effective CMS “into the overall framework for product design, delivery, and administration across their entire product and service lifecycle,” and are required to manage relationships with service providers to ensure compliance with applicable federal consumer financial laws. The CFPB notes that an effective CMS is comprised of two interdependent control components: (i) “Board and Management Oversight”; and (ii) a “Compliance Program,” including policies and procedures, training, monitoring and/or auditing, and consumer complaint response processes. Updates have been made to the Examination Report Template–which provides the scope of review and consumer compliance rating based on the findings of the exam—and the Supervisory Letter Template–which references matters requiring attention or that need to be corrected based on the Bureau’s review.

    Agency Rule-Making & Guidance CFPB Bank Compliance Vendor Management

  • CFPB Proposes Permanent Ban on Credit Repair Company for Misleading Consumers, Illegal Fees

    Consumer Finance

    On August 30, the CFPB and a credit repair company requested a California federal court to enter a final judgment and order to end the CFPB’s lawsuit against the company. The Bureau claimed that the company had violated the Consumer Financial Protection Act of 2010 and the Telemarketing Sales Rule among other things. According to a CFPB press release, the company “[c]harged illegal advance fees”; “[m]isled consumers about the benefits of its credit repair services”; “[m]isrepresented the costs of its services”; and “[f]ailed to disclose limits on ‘money-back guarantee.’” As previously reported in InfoBytes, the CFPB filed similar proposed final judgments against other credit repair companies for largely the same reasons.

    In addition to permanently prohibiting the defendant from working in the credit repair industry, the proposed settlement also requests a civil money penalty of $150,000.

    Consumer Finance CFPB Telemarketing Sales Rule CFPA Enforcement

  • CFPB Issues Summary of Changes and Clarifications to 2017 TILA-RESPA Rule

    Agency Rule-Making & Guidance

    On August 30, the CFPB released “2017 TILA-RESPA Rule: Detailed Summary of Changes and Clarifications” to assist the mortgage industry in implementing the disclosure requirements of the CFPB’s recently finalized TILA-RESPA Rule. The summary provides an in-depth outline of modifications to the rule, and explains and corrects certain provisions.

    Topics covered by the summary include:

    • “Effective date and mandatory compliance date”;
    • “Coverage,” specifically with respect to cooperative units, trusts, and housing assistance loans;
    • “Good faith requirement (i.e., tolerances) and revised disclosures”;
    • “Shopping for settlement services”;
    • “Disclosure of principal reductions (also known as principal curtailments)”;
    • “Total of payments disclosure”;
    • “Simultaneous subordinate lien loans”;
    • “Construction loans”;
    • “Use of positive and negative numbers for certain disclosures in the Loan Estimate and Closing Disclosure”;
    • “Rounding”;
    • “Calculating cash to close”;
    • “Disclosure of payoffs of existing liens, and unsecured debt”;
    • “Disclosure of estimated value when no sales price or appraised value”;
    • “Separation of consumer and seller information on Closing Disclosures”;
    • “Other disclosures in the Loan Estimate”;
    • “Other disclosures in the Closing Disclosure”; and
    • “Other minor changes” (including correcting typographical errors).

    In addition to the summary, the CFPB also provided additional reference materials to help industry participants to comply with the rule. The rule becomes effective on October 10.

    Agency Rule-Making & Guidance CFPB RESPA TILA TRID Mortgages

  • CFPB Publishes Final Rule Amending Annual Dollar Threshold in TILA Regulations

    Lending

    On August 30, the CFPB issued a final rule amending Regulation Z, which implements the Truth in Lending Act (TILA), under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank ability-to-repay and qualified mortgage provisions (ATR/QM). The CFPB is required to make adjustments to dollar amounts in the Regulation Z provisions implementing these laws based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2017. For open-end consumer credit plans under TILA, the minimum interest charge disclosure threshold will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will increase to $21,032, and the adjusted points and fees dollar trigger for high-cost mortgages in 2018 will be $1,052. To satisfy the underwriting requirements under the ATR/QM rule, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be: (i) 3 percent of the total loan amount for loans greater than or equal to $105,158; (ii) $3,155 for loan amounts greater than or equal to $63,095 but less than $105,158; (iii) 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; (iv) $1,052 for loan amounts greater than or equal to $13,145 but less than $21,032; and (v) 8 percent of the total loan amount for loan amounts less than $13,145. The final rule is effective January 1, 2018.

    Lending Agency Rule-Making & Guidance CFPB TILA Credit Cards HOEPA Ability To Repay Qualified Mortgage Federal Register Regulation Z Mortgages

  • District Court Dismisses CFPB Lawsuit Against Payment Processors, Cites “Blatant Disregard” for Discovery Order

    Courts

    On August 25, a federal judge in the U.S. District Court for the Northern District of Georgia filed an order dismissing claims brought by the CFPB against four payment processors for allegedly engaging in an illegal robocall phantom debt collection operation involving certain payment processors and a telephone broadcast service provider (defendants). (See previous InfoBytes coverage here.) According to a complaint filed in 2015, the defendants “knew, or should have known” that the debt collectors were contacting millions of consumers in an attempt to collect debt that consumers did not owe or that the collectors were not authorized to collect by using threats, intimidation, and deceptive techniques in violation of the Consumer Financial Protection Act and the Fair Debt Collection Practices Act.

    According to the order, however, the CFPB displayed a “blatant disregard” for the court’s instructions when asked repeatedly to identify the factual bases for its claims, and willfully failed to present a knowledgeable 30(b)(6) witness during depositions. As examples of “willful disregard,” the court noted that the CFPB’s approach was to first “bury the Defendants in so much information that [they] cannot possibly identify, with any reasonable particularity, what supports the CFPB’s claims,” and second, to “assert privilege objections to questions that the Court … repeatedly ordered to be answered.” The court also indicated that Bureau witnesses relied on “memory aids”—which the court characterized as “scripts”—to provide answers to the defendants’ questions and were unable to testify beyond what was stated on the memory aids. This behavior made the court “not optimistic that reopening the depositions would be fruitful.” As a result, the court dismissed the defendants from the action, granting sanctions under Rule 37, which permits “a district court [to] impose sanctions upon a party for failure to comply with a discovery order,” which may include striking pleadings in whole or in part.

    Courts Payment Processors CFPB CFPA FDCPA UDAAP

  • FFIEC Releases Guidelines on HMDA Data Testing and Resubmission Standards

    Agency Rule-Making & Guidance

    Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines (guidelines). Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018. As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices. According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.

    As previously discussed in InfoBytes, in 2016 the CFPB issued a request for public feedback on the resubmission of mortgage lending data reported under HMDA.

    Agency Rule-Making & Guidance HMDA Mortgages CFPB FDIC Federal Reserve NCUA OCC CRA

  • CFPB Consent Order to Banking Subsidiaries Resolves Discriminatory Credit Card Term Practices in Puerto Rico and U.S. Territories

    Consumer Finance

    On August 23, the CFPB announced it was taking action against two banking subsidiaries of a multi-bank holding corporation for violating the Equal Credit Opportunity Act (ECOA) by allegedly offering credit card products and services to consumers in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories that were inferior to those offered to consumers in the 50 states and discriminating against certain consumers with Spanish-language preferences. The consent order alleges the pattern of discrimination started in January 2005 and continued through November 2015. In 2013, the subsidiaries began self-reporting to the Bureau differences between credit cards and charge cards offered to consumers in the territories versus those offered to consumers in the 50 states, including disparities in pricing, terms and conditions, underwriting, rebates, promotional offers, customer and account management services, credit score requirements, credit limits, and debt collection practices. During the course of the CFPB’s review, the subsidiaries provided monetary and non-monetary relief to more than 200,000 affected consumers, resulting in approximately $95 million of remediation broken into the following amounts paid or credited to consumers: (i) roughly $55.7 million towards pricing, rebates, and promotional offer differences; (ii) approximately $3.2 million towards disparities in underwriting; and (iii) $35.7 million towards customer service, account management, collections, debt mitigation, and line assignment differences. The order also states that the subsidiaries instituted enhancements to their policies and procedures and compliance management systems. Pursuant to the consent order, the subsidiaries must (i) pay at least a $1 million more in restitution to fully compensate affected consumers; and (ii) develop and implement a compliance plan to ensure credit and charge card provisions are handled in a non-discriminatory manner in compliance with ECOA, make any necessary changes to their compliance management systems based on an annual compliance audit program assessment of current business structure, and correct any identified deficiencies. The Bureau further notes that penalties were not assessed due to efforts undertaken by the subsidiaries to self-report deficiencies, self-initiate remediation, and cooperate with the CFPB’s investigation. Furthermore, the Bureau concluded through its review that the subsidiaries did not intentionally discriminate against the consumers, but that the differences occurred as a result of business units utilizing different card management structures in the territories versus in the states.

    Consumer Finance CFPB Credit Cards ECOA Fair Lending

  • CFPB Issues Final Rule Amending 2015 HMDA Rule

    Agency Rule-Making & Guidance

    On August 24, the CFPB issued a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The changes are primarily for the purpose of clarifying the new data collection and reporting requirements published in October 2015, with most of the clarifications and revisions taking effect January 1, 2018. The CFPB released a proposed version of the clarifications  on April 13 (April Proposed Rule)—on which it solicited public comments—to address technical errors, ease the burden of certain reporting requirements, and clarify certain key terms. A detailed look at the April Proposed Rule was provided in an InfoBytes Special Alert earlier this year. An additional request for comments was issued July 14 on proposed amendments to ease the burden on community banks and credit unions by temporary raising the HMDA reporting threshold for open-end lines of credit. (See previous InfoBytes coverage here.) The CFPB adopted the April Proposed Rule and July amendments largely as written, however, a limited number of substantive changes were made. In order to assist filers, the CFPB released a comprehensive summary of the changes and reference charts to help institutions determine whether they are covered by Regulation C for 2017 or 2018 and beyond. The CFPB also released updated filing instruction guidelines for data collected in 2017 and 2018. The guidelines list changes to the reported data fields and valid values, and covers guidance for HMDA data collected in 2017 and thereafter that must be submitted to the CFPB on March 1 of each calendar year following the year of data collection.

    Highlights of changes made to the rule include:

    • Amendments to Regulation C that temporarily increase the threshold for the collection and reporting of data about open-end lines of credit, for a period of two years. Financial institutions originating fewer than 500 open-end lines of credit in either 2018 or 2019 will not be obligated to begin collecting such data until January 1, 2020. During this time, the Bureau will consider whether to make the increase permanent;     
    • Clarification to several aspects concerning the collecting and reporting of race and ethnicity information, including (i) that applicants are not required to select an aggregate race or ethnicity category as a precondition to selecting a race or ethnicity subcategories; (ii) that applicants may provide a particular “other” ethnicity or race in the free-form field, whether or not the applicant selects the “Other Hispanic or Latino,” “Other Asian,” or “Other Pacific Island” subcategory; and (iii) how financial institutions should report ethnicity—following the outlined methods—if an applicant selects more than five ethnicity categories and subcategories combined; and
    • Clarification to certain key terms defined in the 2015 HMDA Rule, including “temporary financing, automated underwriting system, multifamily dwelling, extension of credit, income, and mixed-use property.”

    Buckley Sandler will release a more comprehensive analysis of the rule and its impact on financial institutions next week.

    Agency Rule-Making & Guidance HMDA Mortgages Fair Lending CFPB

  • CFPB Files Amicus Brief Supporting Reversal of Preliminary Injunction Freezing Department of Education’s Student Debt Collection

    Courts

    On August 21, the CFPB filed an amicus brief in the Court of Appeals for the Federal Circuit, urging the court to reverse a trial court’s order and arguing that precluding the Department of Education (Department) from sending billions of dollars in defaulted student loans to debt collection companies is contrary to public interest. The Bureau, siding with the Department, claims the trial court’s preliminary injunction deprives “borrowers in default of access to basic information about key consumer protections and the opportunity to arrange repayment—functions performed by debt collection contractors under [the Department’s] current collections regime—[and] does not facilitate, but impedes, borrowers’ ability to enter into income-driven repayment plans, whether through rehabilitation or consolidation.” As previously reported in InfoBytes, on May 31, U.S. Court of Federal Claims Chief Judge Susan G. Braden ordered a continuation of her preliminary injunction, which prevents the Department from collecting on defaulted student loans—a process that was halted on March 29 when Judge Braden issued a temporary restraining order in this matter. The May order, Judge Braden stated, would stay in place “until the viability of the debt collection contracts at issue is resolved.”

    In its amicus brief, the Bureau contended that data presented in its 2016 Ombudsman Report (Report) providing recommendations for reforms to the current process for collection and restructuring federal student loan debt does not support the trial court’s position, a claim the court made when issuing its order. Rather, the Bureau’s position is that the Report provides several recommendations for improvements to the current system, which focus on which companies will be granted debt collection contracts and, additionally, suggests solutions such as moving rehabilitated borrowers into income-driven repayment plans. The Bureau also proposes ways policymakers can simplify and streamline the rehabilitation process. Thus, the Bureau countered, the preliminary injunction is “wholly divorced from these concerns and recommendations and is, in fact, inconsistent with them.”

    Two of the defendant-appellants also filed separate briefs August 14 and 15. The Department claimed in its August 15 brief that, as of May 31, the injunction has “deprived approximately 234,000 defaulted borrowers, holding accounts valued at $4.6 billion, of loans servicing services” and, furthermore, has resulted in approximately $2.4 million in uncollected funds.

    Notably, the appeals court issued an order on July 18 holding the defendant-appellants motions to stay in abeyance pending the trial court’s decision and denying the plaintiff-appellee’s motion to dismiss.

    Courts U.S. Court of Federal Claims Appellate Student Lending CFPB

  • CFPB, 13 State Attorneys General Take Action Against Private Equity Firm for Allegedly Aiding For-Profit College Company’s Predatory Lending Scheme

    Lending

    On August 17, the CFPB announced a proposed settlement against a private equity firm and its related entities for allegedly aiding a now bankrupt for-profit college company in an illegal predatory lending scheme. In 2015, the CFPB obtained a $531 million default judgment against the company based on allegations that it made false and misleading representations to students to encourage them to take out private student loans. (See previous InfoBytes summary here.) However, the company was unable to pay the judgment because it had dissolved and its assets were distributed in its bankruptcy case that year. Because of the company’s inability to pay, the CFPB indicated that it would continue to seek additional relief for students affected by the company’s practices.  In a complaint filed by the CFPB on August 17 in the U.S. District Court for the District of Oregon, the Bureau relied on its UDAAP authority to allege that the private equity firm engaged in abusive acts and practices when it funded the college company’s private student loans and supported the college company’s alleged predatory lending program.  Specifically, the CFPB alleged that the private equity firm enabled the company to “present a façade of compliance” with federal laws requiring that at least 10 percent of the for-profit school’s revenue come from sources other than federal student aid in order to receive Title IV funds.  The Bureau further alleged that both the company and the private equity firm knew that the high-priced loans made under the alleged predatory lending scheme had a “high likelihood of default.” According to the complaint, the private equity firm continues to collect on the loans made under the alleged predatory lending program. In regard to these loans, the proposed order requires the private equity firm to, among other things: (i) forgive all outstanding loan balances in connection with certain borrowers who attended one of the company’s colleges that subsequently closed; (ii) forgive all outstanding balances for defaulted loans; and (iii) with respect to all other outstanding loans, reduce the principal amount owed by 55 percent, and forgive accrued and unpaid interest and fees more than 30 days past due.

    Relatedly, New York Attorney General Eric T. Schneiderman,  announced on August 17 that his office, in partnership with the CFPB and 12 other state attorneys general, had reached a $183.3 million nationwide settlement with the private equity firm in partnership with the CFPB. According to a press release issued by AG Schneiderman’s office, under the terms of the settlement, an estimated 41,000 borrowers nationwide who either defaulted on their loans or attended the company’s colleges when it closed in 2014 are entitled to full loan discharges—an amount estimated to be between “$6,000 and $7,000.”

    Lending State Attorney General CFPB Student Lending UDAAP Predatory Lending

Pages

Upcoming Events