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CFPB Ombudsman’s Office Issues Mid-Year Update
In July, the CFPB Ombudsman’s Office issued its mid-year update for 2017. Each year, the Ombudsman is required to submit an annual report to the CFPB Director. The mid-year update outlines issues related to individual inquires made to the Ombudsman’s Office, the accessibility of CFPB print materials, whistleblower communications, Ombudsman Forums, Ombudsman Interactives, and the office’s independent outreach programs. Highlighted are several key points:
- Individual Inquires. The Ombudsman’s Office reported that 820 inquiries were received from consumers, financial entities, consumer and trade groups, and others in the first six months of 2017—an increase from the 541 inquiries received during the same time frame the previous year
- Whistleblower Communications. The Bureau continued to receive complaints about alleged violations of consumer financial protection laws. However, according to the Ombudsman, the contact points for whistleblowers have become more difficult to find since the CFPB’s 2016 website refresh. The Ombudsman’s Office provided suggestions to make the information easier to locate.
- Ombudsman Forums. The Ombudsman’s Office recently conducted a forum with compliance officers, or people in similar roles, from companies that engage with the CFPB. The forum facilitated discussions on: (i) compliance management and the consumer complaint process; (ii) the public Consumer Complaint Database; (iii) the examination process; (iv) CFPB compliance tools and resources; and (v) current regulatory compliance process considerations. Additionally, an event with the associations of state government regulators is planned.
- Ombudsman Interactives. The “Ombudsman Interactives” initiative was launched earlier this year to facilitate discussions similar to those at the Ombudsman Forums. Attendees at consumer, trade, and other conferences participated in the onsite interactives.
- Ombudsman Outreach. The Ombudsman’s Office reported that it continues its independent outreach programs intended to share information on the CFPB’s resources and latest work. A coordinated outreach program held this year was attended by nationwide state banking associations.
House Votes to Repeal CFPB Arbitration Rule
On July 25, the House voted along party lines to strike down the CFPB’s final arbitration rule by a vote of 231 to 190, exercising its authority under the Congressional Review Act to overturn a new agency rule within 60 days of its publication. H.J. Res. 111, sponsored by Rep. Keith Rothfus (R-Pa.), invalidates the recently adopted rule that prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. A similar measure was introduced by Senate Banking Committee Chairman Mike Crapo (R-Idaho). A date for the Senate vote has not yet been set.
American Bankers Association. President and CEO Rob Nichols applauded the action: “Today’s action is critical to ensuring the Bureau doesn’t provide trial lawyers with a regulatory windfall at consumers’ expense. In class-action lawsuits, the spoils go overwhelmingly—and sometimes exclusively—to a small group of highly motivated trial lawyers who specialize in filing a large volume of often frivolous litigation.”
Consumer Bankers Association. President and CEO Richard Hunt supported the action: “Consumers' access to arbitration, which has long provided a faster, more cost-effective, and higher recovery alternative to class action lawsuits, should not be undermined by a harmful rule resulting from an incomplete study by the CFPB. The Bureau's own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit.”
U.S. Chamber of Commerce. In a key vote letter sent to the House before Tuesday’s vote, the Chamber of Commerce stated, “Even though this regulation is directed at financial firms, the CFPB’s rule impacts businesses of all types that the Bureau believes touch consumer finance – even mobile telephone service providers and website operators.” Furthermore, the CFPB “decided to issue a regulation that interferes with freedom of contract, imposes new burdensome regulations, hurts consumers, and rewards class action lawyers. Congress should assert its prerogatives and overturn this illegitimate rule.”
Buckley Sandler Insights: CFPB Updates Rulemaking Agenda
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.
Senate and House Committees File Separate Resolutions Disapproving of CFPB Arbitration Rule
On July 20, the Senate Committee on Banking, Housing and Urban Affairs and the House Financial Services Committee each announced Congressional Review Act Joint Resolutions of Disapproval against the CFPB’s Arbitration Agreements final rule issued July 10. In a press release issued by the Senate Committee, 24 Republican senators—including Chairman Mike Crapo (R-Idaho)—expressed concern that the anti-arbitration measure will discourage cost-effective dispute resolution and push consumers into class action lawsuits causing more harm than good. House Republicans outlined similar concerns in a press release issued the same day. H.J. Res. 111, co-sponsored by all 34 Republican members of the House Financial Services Committee, will seek to nullify the rule, which they believe “punish[es] consumers with decreased access to financial products, increased costs for such products, or both.”
The Congressional Review Act allows Congress to overturn agency rules by a simple majority if moved within 60 days from the rule’s publication.
OCC Acting Comptroller Reiterates Request for CFPB Arbitration Rule Data
On July 17, OCC Acting Comptroller Keith Noreika delivered a letter to the CFPB reiterating his request to review the supporting data used to develop the Bureau’s final arbitration rule prohibiting the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. While the CFPB issued assurances that the final rule would not impact the safety or soundness of the financial banking system, Noreika argued that because the Bureau is not a “safety and soundness prudential regulator,” the OCC, as the prudential regulator for the federal banking system, should be allowed to review the underlying data to address potential concerns under Section 1023 in Title X of the Dodd-Frank Act. In response, CFPB Director Richard Cordray stated his team is in the process of gathering the requested data but questioned the “plausible basis” for Noreika’s claim that the final arbitration rule could pose a safety and soundness issue.
ABA, CFPB to Host Webinar for Financial Institutions on New HMDA Submission Platform
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.)
Judge Issues Ruling that Federal Safe Harbor Provision Applies in RESPA Case
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).
ABA, State Banking Associations Request HMDA Implementation Delay
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.
CFPB Seeks Comments on Proposed Amendments to HMDA Reporting Threshold
On July 14, the CFPB announced and requested comments on proposed amendments to Regulation C, which concerns reporting requirements for banks and credit unions issuing home-equity lines of credit under HMDA. The amendments would raise the threshold from 100 loans to 500 for calendar years 2018 and 2019 to ease the burden on small-volume lenders. During this time, the Bureau will determine based on feedback whether the threshold should be permanently changed. The comment period ends July 31, 2017.
As previously reported in InfoBytes, earlier this year the Bureau solicited and received comments on its proposal to clarify data collection and reporting requirements under the 2015 HMDA rule. The amendments are scheduled to take effect January 1, 2018.
CFPB Extends Comment Deadline for Small Business Lending Request for Information
On July 12, the CFPB issued a notice in the Federal Register announcing that, in response to a request from 13 industry trade associations for an additional comment period extension, the Bureau has extended the comment period of the “Request for Information Regarding the Small Business Lending Market” for another 60 days. As previously covered in InfoBytes, the Bureau is seeking responses to its questions regarding the small business lending market and how the implementation of Section 1071 Dodd-Frank Act will affect small business financing. The Bureau also hopes to receive feedback on privacy concerns related to the Section 1071 disclosures. In light of the extension, comments must now be received by September 14.