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CFPB Releases Financial Literacy Annual Report for 2016
On October 31, the CFPB released its Financial Literacy Annual Report for 2016. The report describes what the Bureau is doing to “help consumers navigate the financial marketplace and build financial well-being” per its mandate under Dodd-Frank to improve the “financial literacy” of consumers in America. The 2016 edition of the report is broken down into three sections: (i) why there is a need for financial literacy amongst consumers; (ii) the Bureau’s approach to increasing financial literacy; and (iii) research initiatives designed to “understand consumers and the financial market place,” “effective financial education practices,” and “how best to prepare youth for financial capability in adulthood.”
CFPB Releases Supervisory Highlights Report for Fall 2016
On October 31, the CFPB released the 13th Edition of its Supervisory Highlights Report, covering the period May through August of this year. The report shares recent supervisory observations in the areas of automobile loan origination, automobile loan servicing, debt collection, mortgage origination, mortgage servicing, student loan servicing, and fair lending. The report found that the CFPB’s recent supervisory actions returned more than $11 million to approximately 225,000 consumers. The Bureau also set forth new examination procedures for reverse mortgage servicing, student loan servicing, and the Military Lending Act.
CFPB Clarifies "Flexibility" in Third-Party Risk Management
On November 1, the CFPB issued an update to its previous guidance on risk management for third-party service providers. The update is substantially similar to the Bureau’s previous guidance on third-party risk management, but clarifies that the depth and formality of an entity’s risk management program for service providers may vary depending upon (i) the service being performed, and (ii) the service provider’s compliance with federal consumer financial laws and regulations. With this update, the CFPB emphasized that supervised entities have flexibility to allow appropriate risk management of these relationships.
CFPB Reissues Guidance on Service Providers
On October 26, the CFPB published Bulletin 2016-02 on service providers to amend previously issued guidance covered in Bulletin 2012-03. Bulletin 2016-02 seeks to clarify that supervised banks and nonbanks have flexibility in managing the risks of service provider relationships. Specifically, the CFPB advises that “the depth and formality of the risk management program for service providers may vary depending upon the service being performed —its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations.” The CFPB plans to post Bulletin 2016-02 on its website on October 31, 2016.
CFPB Monthly Complaint Report Spotlights Prepaid Complaints
On October 25, the CFPB released its latest monthly report of consumer complaint trends. This month’s report highlights prepaid complaints, noting that since July 21, 2011, the CFPB has received approximately 6,000 prepaid complaints. According to the report, the “most common issues identified by consumers are problems with managing, opening or closing an account (32 percent) and unauthorized transactions or other transaction issues (30 percent).” Additional prepaid complaints highlighted in the report include: (i) consumers experiencing delays in receiving a replacement card after having notified a company of fraudulent or unauthorized charges to their prepaid cards; (ii) difficulty using a prepaid card after having purchased one; (iii) assessing dormancy fees that depleted the card’s balance; and (iv) balance discrepancies. Consistent with past reports, this month’s issue lists the top ten most-complained-about companies across all financial products, as well as the top seven most-complained about companies for prepaid-related issues. Finally, the report identifies North Carolina as its geographical spotlight, observing that, as of October 1, 2016, the CFPB has received about 27,600 complaints from North Carolina consumers.
CFPB Issues Warning Letters to 44 Mortgage Lenders and Brokers for Potential HMDA Reporting Failures
On October 27, the CFPB issued warning letters to 44 mortgage lenders and mortgage brokers informing them that they may not be in compliance with certain provisions of the Home Mortgage Disclosure Act (HMDA) and Regulation C. The warning letters state that the recipients may be required to collect, record, and report housing-related lending data, and that they may be violating those requirements. Under HMDA, financial institutions that meet certain criteria are required to collect and report data related to their housing-related activity, including home purchase loans, home improvement loans, and refinancings they originate or purchase, or for which the institutions receive applications. The letters recite HMDA’s coverage criteria for lenders who are not banks, credit unions, or savings associations, suggesting that the CFPB is particularly concerned about HMDA compliance for non-depository mortgage lenders. While the letters state that the CFPB has not made any determinations that the recipients are in violation of HMDA filing requirements, the letters urge recipients to review their practices to ensure compliance with the relevant laws, and encourage recipients to advise the CFPB if the institution has taken steps or will take steps to ensure compliance. The letters advise recipients of the CFPB’s authority to impose civil money penalties for noncompliance with HMDA. In October 2013, the CFPB fined a bank and a nonbank mortgage lender for filing inaccurate HMDA data. In October 2015, the CFPB finalized a rule amending the HMDA reporting requirements under Regulation C, with the majority of the provisions taking effect on January 1, 2018.
CFPB Mortgage Servicing Rule Published in Federal Register
Last week, the CFPB’s final rule amending the mortgage servicing provisions of Regulations X and Z was published in the Federal Register. The amendments were previously covered in BuckleySandler’s August 9 Special Alert. The majority of the final rule will take effect on October 19, 2017, exactly one year after its Federal Register publication date. Certain provisions related to successors in interest and bankruptcy periodic statements will become effective on April 19, 2018. The CFPB’s interpretive rule under the FDCPA addressing industry concerns and conflicts with the servicing rules in Regulations X and Z was simultaneously published in the Federal Register on October 19, 2016.
CFPB Releases First-Ever Project Catalyst Innovation Highlights Report
On October 20, the CFPB released a new report titled “Project Catalyst report: Promoting consumer-friendly innovation-Innovation Insights.” The report provides an overview of Project Catalyst’s work to promote “consumer-friendly innovation and entrepreneurship,” and outlines the importance of ensuring that consumer protections are built into emerging products and services from the outset. The CFPB released the report in conjunction with remarks given by Director Cordray at Money 20/20, an industry conference focused on payments and financial services innovation.
The report emphasizes the CFPB’s “very sensitive” approach to new technologies, such as its “active role in the push for faster payments systems,” as well as its more general efforts “to identify innovative trends in the marketplace to inform our work.” Throughout the report, the CFPB highlights its efforts to establish “effective communication channels” with “innovators,” including the agency’s pilot program with a credit card company to evaluate the effectiveness of certain practices to encourage prepaid card users to develop regular saving behavior. In its last section, the report discusses various “marketplace developments that may hold the potential for consumer benefits.”
The report similarly summarizes ongoing efforts to coordinate with state, federal, and international regulators, cautioning that the agency “will take action as necessary to protect consumers from innovations that may be unfair, deceptive, abusive, or discriminatory.” In addressing industry members, both the report and Director Cordray at Money 20/20 discuss the CFPB’s authority to provide greater latitude for companies to test alternatives to standard disclosures over time – using as an example, the CFPB’s trial disclosure waiver policy and its no-action letter policy through which the Bureau “can reduce regulatory uncertainty for consumer-friendly innovations.” The report and Director Cordray call for industry participants to propose alternative means of disclosure to consumers.
CFPB Director Cordray Delivers Remarks at MBA Conference
On October 25, CFPB Director Richard Cordray delivered remarks to the Mortgage Bankers Association (MBA). Cordray highlighted the CFPB's role in helping the housing economy to recover, including regulatory actions from 2014 to the present. Director Cordray also advised industry participants that they should expect more regulation and oversight over the coming year, explaining that the cost of compliance, though burdensome, was "inevitable" in light of the "far-reaching" effects of the financial crisis that Congress was trying to fix.
Director Cordray revealed three priority areas for enforcement and supervision in the next year: (i) consumer complaints, explaining that the CFPB will now require underperforming servicers to document the technology and process changes used to implement the agency’s recently released servicing regulations, because, among other reasons, the Bureau considers monitoring and addressing the process through which complaints are handled part of "a basic component" of any compliance effort; (ii) redlining, noting that the Bureau has identified “redlining” as a target for its supervisory work in the coming year, and has teamed up with the DOJ to bring “major enforcement actions” against institutions found to be discriminatory in their lending practices; (iii) RESPA violations, announcing that the CFPB will continue to adhere to its 2015 bulletin regarding marketing servicing agreements despite the recent PHH ruling. He further noted that the PHH case "is not final at this point" and that the Bureau "respectfully disagrees" with the finding.
State AGs Urge the CFPB to Ensure that States Maintain the Right to Set Usury Caps on High Cost Loans
In October, New York AG Eric T. Schneiderman, along with seven other state AGs (Connecticut, Maryland, Massachusetts, New Hampshire, Pennsylvania, Vermont and the District of Columbia), submitted a letter to the CFPB in response to the agency’s proposed rule addressing payday loans, vehicle title loans, and certain high-cost installment loans. While commending the CFPB for introducing additional consumer protections, the letter urges the CFPB to integrate the following language from the preamble of the proposed rule into the body of the final rule: “The protections imposed by this proposal would operate as a floor across the country, while leaving State and local jurisdictions to adopt additional regulatory requirements (whether a usury limit or another form of protection) above that floor as they judge appropriate to protect consumers in their respective jurisdictions.” The letter explains that because the CFPB does not have the authority to set interest rates – or usury caps – for loans, it is “crucial” that states maintain their right to do so.