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CFPB Publishes Updated Version of its Mortgage Servicing Small Entity Compliance Guide
On December 1, the CFPB published an updated version of the Mortgage Servicing Small Entity Compliance Guide on its "Mortgage Servicing Implementation & Guidance" webpage. The updated guide incorporates amendments made to mortgage servicing provisions in Regulation X and Regulation Z by the 2016 Mortgage Servicing final rule. Most provisions of the 2016 Mortgage Serving final rule take effect on October 19, 2017. However, the provisions relating to successors in interest and the provisions relating to periodic statements for borrowers in bankruptcy will not take effect until April 19, 2018.
PHH Response Due Date Pushed Back as Solicitor General Permitted to Respond to CFPB's Petition in PHH Corp. v. CFPB by December 22
As discussed previously, the D.C. Circuit ordered PHH to respond to the CFPB’s petition for en banc review of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. In an Unopposed Motion for Leave to file the United States' Response, filed December 1, the Office of the Solicitor General sought permission to file its own responsive briefing on or before December 22. In an Order issued December 1, the D.C. Circuit granted the Solicitor General’s request, but also moved back the due date for PHH’s responsive papers so that both responses are now due on December 22.
Earlier in the week, on November 30, two groups filed amicus briefs in support of the CFPB’s petition together along with motions requesting an invitation from the court. The first brief was submitted by a group of leading consumer protection organizations, while the second brief was filed by a group of 21 current and former members of Congress.
Full D.C. Circuit Orders PHH to Respond to CFPB's Petition for En Banc Review, Invites U.S. Solicitor General to Provide Views
On November 23, the full D.C. Circuit ordered PHH to respond to the CFPB's petition for en banc review of the October 2016 three-judge panel decision in PHH Corp. v. CFPB. The CFPB’s November 18 petition challenged, among other things, the conclusion by the majority of the panel that the CFPB's structure was unconstitutional and that, to remedy this defect, the Director must be removable at will by the President. PHH’s response, which is due by December 8, would not have been permitted without the court’s order. Similarly, the CFPB is not permitted to file a reply unless ordered by the court. Importantly, the en banc court also “invited” the U.S. Solicitor General “to file a response to the petition” to “express[] the views of the United States.” Although there is no deadline for this response, the invitation allows the Solicitor General to respond before the change in administration, which may be significant because the Dodd-Frank Act does not allow the CFPB to petition the Supreme Court for review without the approval of the Attorney General (12 USC § 5564(e)).
For additional background, please see our summaries of the panel decision and the CFPB's petition for rehearing.
CFPB Releases 2017 Lists of Rural, Underserved Counties
On November 20, the CFPB released the 2017 iteration of its annual lists of rural counties and rural or underserved counties for use in conjunction with the several CFPB rules that refer to “rural or underserved” and “rural” counties, including the balloon-payment qualified mortgage definition and the exemption from the escrow requirements for higher-priced mortgage loans. Rural counties were generally defined by using a U.S. Department of Agriculture classification system and under-served counties were defined by data collected under the Home Mortgage Disclosure Act. In addition to these lists, the bureau also directs lenders to use its Rural or Underserved Areas Tool to provide a safe harbor determination that a property is located in a rural or underserved area for purposes of Regulation Z.
CFPB Requests Rehearing of Decision Threatening Agency's Structure
Earlier today, the CFPB filed its much-anticipated response in PHH Corp. v. CFPB, requesting reconsideration by the full D.C. Circuit. As discussed in our special alert, on October 11, 2016, a three-judge panel of the D.C. Circuit vacated the CFPB’s $109 million penalty against PHH under the Real Estate Settlement Procedures Act (RESPA). In addition, a majority of the panel held that, to resolve a constitutional defect in the CFPB’s structure, the Director was removable by the President at will, meaning that President Trump could remove Director Cordray upon taking office. However, the panel’s decision is stayed until seven days after the court rules on the CFPB’s request.
Rather than proceeding directly to the Supreme Court, the CFPB proceeded as expected by requesting rehearing en banc by the full D.C. Circuit, which is generally disfavored and granted only for matters of “exceptional importance.” Perhaps most significantly, the Bureau’s petition does not request rehearing of the panel’s conclusion that RESPA’s three-year statute of limitations applied to administrative as well as judicial actions brought under that statute.
The CFPB’s petition argues that the panel’s constitutional ruling on the CFPB’s structure should be reheard because it “sets up what may be the most important separation-of-powers case in a generation.” Specifically, the Bureau argues that the panel’s determination that a multi-member commission is an essential component of an independent agency runs contrary to Supreme Court precedent and “unduly limits Congress’s flexibility to respond to the various crises of human affairs … by creating independent administrative agencies headed by a single director.” The Bureau further states that the panel’s reasoning “may affect not only the Bureau but also other agencies headed by a single director removable only for cause,” such as the Social Security Administration, Federal Housing Finance Agency, and the Office of Special Counsel.
The Bureau also asks the D.C. Circuit to rehear the panel’s determination that RESPA permits lenders and mortgage insurers to enter into tying arrangements under which the lender refers mortgage insurance businesses to the insurer in exchange for the insurer purchasing reinsurance from the lender’s affiliate. In support of this request, the Bureau argues that “the panel’s decision misinterpreted [RESPA] in a manner that so fundamentally defeats the statutory purpose [of prohibiting kickbacks] as to warrant rehearing en banc.” Specifically, the Bureau states that “[t]he panel’s reading of the statute would permit any mortgage lender to condition referrals on the purchase of goods or services in any related or unrelated business line. Such schemes flout the core purposes of RESPA.”
Under the D.C. Circuit’s rules, PHH is not permitted to file a response to the CFPB’s petition unless ordered by the court to do so. However, the court will not modify the panel’s opinion without allowing PHH to respond to the petition. There is no deadline for action by the court.
CFPB Launches Inquiry into Consumer Financial Data Access
On November 17, the CFPB formally announced the launch of an inquiry into the benefits and risks associated with consumers authorizing third-parties to access their financial and account information held by financial service providers. The CFPB has been investigating and assessing issues related to data access and technological innovation for some time, including through Project Catalyst.
As detailed in the Request for Information (Dkt No. CFPB-2016-0048) issued on November 17, the CFPB is focused on three main points of inquiry: (i) secure access for consumers – i.e., are consumers able to securely access, and authorize others to securely access, their financial records? Are there any “business burdens” that must be addressed to provide access and use of financial records?; (ii) third-party risk -- i.e., some financial institutions have expressed concern that providing third parties with access to records may compromise consumer privacy or put their funds at risk. The CFPB would like learn more about options for ensuring that financial records are securely obtained, stored and used; and (iii) consumer control -- i.e., to what extent are consumers able to control how shared data is being used by third-parties with authorized access? Are consumers able to limit the number of times those firms can access the data?
In prepared remarks delivered at a field hearing in Salt Lake City, UT, CFPB Director Richard Cordray explained: “The technology around digital financial records continues to develop and, so far, there are many unanswered questions about how the information is being shared, by and to whom, and how safely. As with any emerging industry, we are hearing about some bumps in the road. Both Fintech companies and financial institutions, as well as consumer groups, are describing to us the various challenges, risks and technological obstacles to further progress in this area.”
GAO Finds Continuing Significant Deficiency in CFPB's Internal Controls, Some Progress Made
On November 15, the GAO released is annual review of the CFPB’s financial statements. The GAO report (GAO-17-138R) found: (i) that the CFPB’s financial statements were presented fairly and in accordance with generally accepted accounting principles; (ii) although internal controls could be improved, the CFPB maintained effective internal controls over financial reporting as of September 30, 2016; and (iii) no reportable noncompliance for fiscal year 2016 with provisions of applicable laws, regulations, contracts, and grant agreements the GAO tested. The GAO did identify a continuing significant deficiency in internal controls over accounting for property, equipment, and software, but also noted that the CFPB has made progress in correcting the deficiency, which was first identified in the previous year’s report.
Commenting on the report, the CFPB stated that “it was pleased to receive an unmodified audit opinion on its fiscal years 2016 and 2015 financial statements.” The CFPB further concurred with the significant deficiency over accounting for its property, equipment, and software that GAO reported, and added that “it will continue to work to enhance its system of internal control and ensure the reliability of CFPB’s financial reporting.”
CFPB Releases "Snapshot of Servicemember Complaints"
On November 14, the CFPB announced the release of its annual review of issues related to mortgage financing programs offered by the U.S. Department of Veterans Affairs, entitled A Snapshot of Servicemember Complaints. According to the report, as of November 1, the CFPB has received over 12,500 mortgage complaints from servicemembers, veterans, and their dependents, with the CFPB identifying at least 14% (about 1,800) of those complaints relating to refinancing. The complaints concerned a wide range of issues, including aggressive solicitations, misleading advertisements, processing delays that resulted in less favorable terms than expected, a lack of clarity in loan documents, and poor communications during refinancing that resulted in customer confusion.
As Part of Joint Initiative with the CFPB, FTC Launches Updated, Mobile-Friendly Military Consumer Website
On November 15, the FTC announced the launch of its new mobile-friendly “financial readiness” website, which is designed to help members of the military community navigate personal financial decisions in light of the unique challenges they face, such as frequent relocations and deployment. The website, which may be found at www.Military.Consumer.gov, is a collaborative effort of the FTC, DoD, CFPB and others.
Election Results: Preliminary Thoughts and Reactions
As a result of last Tuesday’s election, Republicans will control the White House and both houses of Congress in 2017. It is likely there ultimately will be some significant changes affecting financial services regulation and enforcement, but they will take time to implement. The President-elect has articulated sympathy for less regulation and opposition to the Dodd-Frank Act but also an unconventional economic populism. The Congressional Republicans have already prepared, and in some cases passed, more specific changes to limit and cabin the CFPB. We anticipate efforts focused on changing the CFPB Director and CFPB structure, reduced regulation that may encourage product innovation (particularly in the FinTech space), and potentially less emphasis on certain Department of Justice (“DOJ”) enforcement initiatives such as fair lending and the Residential Mortgage-Backed Securities (“RMBS”) task force. Nonetheless, we expect continued enforcement and supervisory activity, including by states and by prudential regulators that are less directly tied to shifting political winds.
Click here to read the full special alert
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Questions regarding the matters discussed in this alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeremiah S. Buckley, (202) 349-8010
- Joseph M. Kolar, (202) 349-8020
- John P. Kromer, (202) 349-8040
- Jon D. Langlois, (202) 349-8045
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- Christopher M. Witeck, (202) 349-8051