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CFPB Holds Field Hearing On Prepaid Products, Proposes New Rule
On November 13, the CFPB held a field hearing in Delaware to discuss its proposed rule regarding prepaid products. The proposal, which would amend Regulation E and Regulation Z, requires prepaid companies to provide certain protections under federal law.
In his opening remarks, Director Cordray noted that the many prepaid card consumers are some of the most economically vulnerable among us and that such cards have few, if any, protections under federal consumer financial law. Cordray outlined the reasons the Bureau’s proposed rule would “fill key gaps” for consumers. First, the proposed rule would provide consumers free and easy access to account information. Second, the proposed rule would mandate that financial institutions work with consumers to investigate any errors on registered cards. Third, the proposed rule would protect consumers against fraud and theft. Fourth, the rule includes “Know Before You Owe” prepaid disclosures, which would highlight key costs associated with the cards. Fifth, where prepaid card providers also extend credit to consumers such offers would be treated the same as credit cards under the law.
CFPB Fines Mortgage Lender for Violating Loan Originator Compensation Rule
On November 13, the CFPB ordered a residential mortgage lender to pay $730,000 for violating the Loan Originator Compensation Rule. According to the complaint filed by the CFPB, from June 2011 to October 2013, the mortgage lender paid quarterly bonus payments totaling $730,000 to 32 loan officers based in part on the interest rates of the originated loan. The rule, which has been enforced by the CFPB since July 2011, prohibits mortgage lenders from paying loan officers based on loan terms such as interest rates. As part of the consent order, the mortgage lender agreed to end its current compensation practice and pay $730,000 to affected consumers. The CFPB did not seek a civil penalty.
CFPB Releases Report Highlighting Debt Collection Complaints Among Older Americans
On November 5, the CFPB announced the release of a report highlighting debt collection issues among older Americans. The report analyzed nearly 8,700 complaints made by older consumers from July 2013 to September 2014. The most common debt collection complaints noted in the report relate to medical debt, debts of deceased family members, and threats to garnish older American’s federal benefits. Notably, of the complaints submitted, 17 percent were related to credit cards and 5 percent to payday loans.
Webinar Recap: Discussing "The New CFPB Mortgage Origination Rules Deskbook"
On October 28, 2014, BuckleySandler presented the webinar “Discussing The New CFPB Mortgage Origination Rules Deskbook.” Contributors Joseph Kolar discussed the need for the book and highlighted information from specific chapters. The webinar was moderated by Jeffrey Naimon. This webinar recap covers the highlights from their discussion. For more information about the CFPB Deskbook, including information on obtaining hard copies, email CFPBDeskbook@buckleyfirm.com.
The purpose of the CFPB Deskbook is simple – consolidate in a clear, organized format, material from all of the many sources of regulatory guidance on the Consumer Financial Protection Bureau’s (CFPB) mortgage origination rules. .
Kolar followed their general discussion of the book with an overview of what they consider some of the most valuable chapters, including, among others:
- ATR / QM Rule -- Incomplete Loan File (Chapter 1)
- The CFPB explicitly declined to adopt a rule, similar to the familiar parol-evidence rule of contract law, under which only the written record of a credit decision at origination could be considered in a later ability-to-repay / QM challenge by the borrower.
- While this can leave creditors vulnerable to borrower claims in such a challenge that the written record is incomplete and fails to reflect information the borrower supplied.
- Calculating Points and Fees (Chapter 2)
- While the rule and commentary are clear on the treatment of private mortgage insurance, the term “prorated” is never defined in the rule itself. This leaves the term up for definition by contracts or state law. However, the CFPB did develop a calculation to define “prorate” –only offered orally in a CFPB staff webinar.
- The CFPB Deskbook includes transcripts of this webinar and explains the calculation.
- BuckleySandler also has published a Special Alert on the CFPB’s October 2014 rule amendments, which provide a points-and-fees cure mechanism. An update to the CFPB Deskbook describing those amendments also is coming soon.
- Loan Originator Compensation Rules (Chapter 4)
- Naimon described the proxy rules applicable to the ban on term-based loan originator compensation as “a quagmire.” The CFPB Deskbook offers clarification on issues related to proxy such as geography, loan origination channels and borrower income levels.
- Point Banks (Chapter 4)
- Since the loan originator compensation rule was released, organizations have sought clarification as to what a point bank actually is and if are they allowed. The CFPB offered clarification on these questions in preamble language, which is captured in the CFPB
- TILA-RESPA Integrated Disclosures (TRID) Rule (Chapter 10)
- While this rule is not yet in place, the CFPB Deskbook includes a summary of the rule, as well as discussions of issues raised most often by our clients regarding the rule.
- BuckleySandler has also developed a TRID Resource Center.
- ATR / QM Rule -- Incomplete Loan File (Chapter 1)
CFPB Report Highlights Errors In Mortgage And Student Loan Servicing
On October 28, the CFPB released the fifth edition of its Supervisory Highlights report. The report highlighted the CFPB’s recent supervisory findings of regulatory violations and UDAAP violations relating to consumer reporting, debt collection, deposits, mortgage servicing and student loan servicing. The report also provided updated supervisory guidance regarding HMDA reporting relating to HMDA data resubmission standards. With respect to consumer reporting, the report identified a variety of violations of FCRA Section 611 regarding dispute resolution. The report noted findings of several FDCPA and UDAAP violations in connection with debt collection, including: (i) unlawful imposition of convenience fees; (ii) false threats of litigation; (iii) improper disclosures to third parties; and (iv) unfair practices with respect to debt sales. For deposits, the report identified several Regulation E violations found, including: (i) error resolution violations; (ii) liability for unauthorized transfers; and (iii) notice deficiencies. The report outlines four main compliance issues identified in the mortgage servicing industry: (i) new mortgage servicing rules regarding oversight of service providers; (ii) delays in finalizing permanent loan modifications; (iii) misleading borrowers about the status of permanent loan modifications; and (iv) inaccurate communications regarding short sales. Finally, the report outlines six practices at student loan servicers that could constitute UDAAP violations: (i) allocating the payments borrowers make to each loan, which results in minimum late fees on all loans and inevitable delinquent statuses; (ii) inflating the minimum payment due on periodic and online account statements; (iii) charging late fees when payments were received during the grace period; (iv) failing to give borrowers accurate information needed to deduct loan interest payments on tax filings; (v) providing false information regarding the “dischargeable” status of a loan in bankruptcy; and (vi) making debt collection calls to borrowers outside appropriate hours.
Special Alert: CFPB Finalizes Points-and-Fees Cure and Other Mortgage Rule Amendments
Last week, the CFPB finalized an important amendment to its ATR/QM Rule that provides a mechanism for curing points-and-fees overages on qualified mortgage (“QM”) loans, as well as more minor amendments to its mortgage origination and servicing rules. The new rules, which were proposed in April, are detailed below. The discussion below regarding the new origination rules, including the points-and-fees cure, will also appear with the American Bankers Association/BuckleySandler publication, The New CFPB Mortgage Origination Rules Deskbook. (Click here for information about obtaining copies of the Deskbook.)
Click here to view the full special alert.
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.
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
CFPB Finalizes Qualified Mortgage Points & Fees Cure
On October 22, the CFPB finalized targeted amendments to the Dodd-Frank Act mortgage rules that took effect in January 2014. The amendments include:
- Points and fees cure. Under the Ability-to-Repay/Qualified Mortgage Rule, loans must meet certain requirements to receive “qualified mortgage” or “QM” status. In particular, the points and fees charged to a consumer on a QM generally cannot exceed 3 percent of the loan amount. The amendments permit a lender or secondary market purchaser that discovers, after the loan has closed, that the 3 percent cap was exceeded to retain QM status by refunding the excess amount to the consumer with interest. However, the refund must occur within 210 days after consummation and before the consumer files suit, provides written notice to the lender that the cap has been exceeded, or becomes 60 days past due. In addition, the creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. Although the CFPB stated that this amendment is intended to encourage lenders to provide access to credit to consumers seeking loans that are at or near the points and fees limit, the provision will expire on January 10, 2021.
- Debt-to-income cure. In the April proposal, the Bureau requested comment on the need for a cure for loans that inadvertently exceed the 43% debt-to-income requirement for QMs made under Appendix Q. The Bureau deferred action on this issue, stating that it is considering the comments and whether to address the issue in a future rulemaking.
- Ability-to-Repay exemption for non-profits expanded. Certain 501(c)(3) nonprofit organizations that lend to low- and moderate-income consumers are already exempt from the Ability-to-Repay rule if the organization makes no more than 200 mortgages a year, among other limitations. The CFPB has amended this provision to allow certain non-profit groups to continue extending interest-free, forgivable loans, also known as “soft seconds,” without regard to the 200-mortgage loan limit.
- Small servicer exemption expanded. Certain small servicers are exempt from some of the CFPB’s new mortgage servicing rules, so long as they (and their affiliates) service 5,000 or fewer mortgage loans and they (or their affiliate) are the creditor or assignee for all of the loans. However, some non-profit organizations do not meet this exemption because they service loans, for a fee, from other associated non-profit lenders that are not considered “affiliates,” even though they operate under mutual contractual obligations to serve the same charitable mission, and use a common name, trademark, or servicemark. Because of this unique corporate structure, these non-profit organizations did not qualify for the small servicer exemption, unlike their for-profit counterparts with similar arrangements. The final rule expands the small servicer exemption to include these non-profit organizations, so long as they are 501(c)(3) non-profits that service loans on behalf of other non-profits within a common network or group of nonprofit entities, and meet other requirements.
CFPB Finalizes Rule To Limit Relief From Annual Privacy Notice Delivery Requirements
On October 20, the CFPB finalized its amendment to Regulation P, which requires that financial institutions meet specific consumer data-sharing requirements, including the delivery of annual privacy notices. Under the new rule, bank and nonbank institutions under the CFPB’s jurisdiction will now be allowed to post privacy notices online, rather than deliver an annual paper copy. Institutions that choose to post notices online must meet certain conditions, including (i) providing notice to consumers if the institution shares any data to third parties, in addition to providing an opportunity to opt out of such sharing; and, (ii) using the 2009 model disclosure form developed by federal regulatory agencies. The institutions that choose to rely on the new delivery method must (i) ensure that customers are aware of the notices posted online; (ii) provide paper copies within ten days of a customer’s request; and, (iii) make customers aware that the privacy notice(s) are available online—and that a paper copy will be provided at the customer’s request—by inserting a “clear and conspicuous statement at least once per year on an account statement, coupon book, or a notice or disclosure.” As outlined when the proposed rule was issued in May, the CFPB anticipates that the rule will: (i) provide consumers with constant access to privacy notices; (ii) limit the amount of an institution’s data sharing with third parties; (iii) educate consumers on the various types of privacy policies available to them; and, (iv) reduce the cost for companies to provide privacy notices.
CFPB Proposes Language Access Plan To Provide Services In Non-English Languages
On October 23, the CFPB announced its proposal for a Language Access Plan, continuing its efforts to provide non-English speaking persons access to its programs and services. The Language Access Plan “describes the Bureau’s policy and how the Bureau’s current language access activities are implemented across all of the Bureau’s operations, programs and services.” Comments on the proposed plan are due by January 6, 2015.
Webinar Recap: The CFPB's Expanding Oversight of Auto Finance, Part I
On October 1, 2014, Buckley Sandler hosted a webinar, The CFPB’s Expanding Oversight of Auto Finance, Part One. Through an examination of the Consumer Financial Protection Bureau’s (CFPB) authority, recent enforcement activities, and discussion of the exam process, John Redding, Michelle Rogers, andMarshall Bell explored the different areas of the auto finance industry coming into the CFPB’s focus.
Buckley Sandler will present The CFPB’s Expanding Oversight of Auto Finance, Part Two on October 30, 2014.
Explaining the Larger Participant Rule
Since its creation, the CFPB has held statutory authority to supervise nonbank institutions who are “a larger participant of a market for other consumer financial products or services.” On September 17, 2014, the CFPB proposed a rule defining a market for “automobile financing” and “larger participants” within that market. Under this proposed rule:
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes:
- Credit granted for the purpose of purchasing an automobile
- Refinancings
- Automobile leases
- Purchases of extensions of credit and leases
- An “automobile” includes any self-propelled vehicle used primarily for a consumer purpose for on-road transportation, except for certain identified vehicle types, including recreational vehicles, motor scooters and limited others
- Affiliates are included in calculations but dealers are excluded
Supervisory & Enforcement Activities & Trends
Our attorneys noted that potential fair lending issues resulting from dealer “reserve” (also known as “participation”), which is the amount paid based on the difference between the buy rate and contract rate, remains the CFPB’s top area of focus in auto finance at this time, though the CFPB is expected to expand its focus beyond fair lending in the near future. They identified ancillary products, debt collection, and credit reporting as likely areas of CFPB expansion and noted that while the CFPB does not have authority to enforce the Sevicemembers’ Civil Relief Act (SCRA), the Bureau may rely on its Unfair, Deceptive, Abusive Acts and Practices (UDAAP) authority in seeking to extend its authority with respect to SCRA claims. The panelists went on to identify specific areas of CFPB interest under each area of enforcement.
Outlining the Exam Process
Each panelist is experienced in working with the CFPB, including in the examination context. They offered their insights on working with the CFPB to negotiate modifications of timing and scope of examination requests, educating examiners on business operations, and responding to Potential Action and Request for Response (PARR) and Notice and Opportunity to Respond and Advise (NORA) letters. Our panelists stated that ECOA exams of creditors are one of the most common CFPB examinations in the auto finance industry, reviewing the following three aspects of transactions:
- Buy rates
- Mark up
- Underwriting decisions
The exam process may include:
- Initial information request/ “first day letter”
- Request for transactional data
- Discussions to clarify exam scope, responsibilities, resources and document control
- Presentations of key operational processes
- Statistical testing to detect potential disparities on a prohibited basis in underwriting outcomes, buy rates or “mark up”
- Notification of alleged violations or concerns may be communicated by:
- “Soft exit” meeting or formal exit meeting
- PARR/NORA letter
- Written examination report
- Informal discussion
- A nonbank institution is a larger participant in the auto finance market if it “has at least 10,000 aggregate annual originations,” which includes: