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Senators Raise Concerns about CFPB's Data Collection
On April 23, the Senate Banking Committee held a hearing during which CFPB Director Richard Cordray testified on the CFPB’s semiannual report to Congress. A substantial portion of the hearing focused on the CFPB’s collection and use of data. Republican committee members led by Ranking Member Mike Crapo (R-ID) criticized the CFPB’s data collection efforts and its developing ability to “watch” consumers, and questioned the CFPB’s legal authority to collect data that could be reverse engineered to connect with specific consumers. Mr. Cordray explained that “big data” is the cutting edge of research in every field and that the CFPB needs to keep pace with financial institutions. According to Mr. Cordray (i) the CFPB’s data are not connected to individuals (aside from complaint data) and are “anonymized”, (ii) much of the data come commercial resources already accessible to firms, (iii) the CFPB obtains certain data from the same sources other regulators have in the past, and (iv) all of the data are essential to the CFPB’s ability to carry out its congressionally mandated work, including rulewriting, reporting to Congress, and undertaking other studies. The hearing also covered numerous other topics including (i) the impact of CFPB’s mortgage rules on small institutions, (ii) the CFPB’s collection and assessment of consumer complaints, (iii) coordination of examinations and information requests among federal and state regulators, and (iv) the status of the CFPB’s arbitration study, portions of which the CFPB may release this year.
House Committee Refuses to Allow CFPB Director to Appear
On April 22, House Financial Services Committee Chairman Jeb Hensarling (R-TX) sent letters to CFPB Director Richard Cordray and CFPB General Counsel Meredith Fuchs stating that the House Financial Services Committee cannot allow Director Cordray to testify on the CFPB’s semiannual report, as the Committee has in the past, because no nominee for CFPB Director has been confirmed. Citing the D.C. Circuit’s January 2013 decision in Noel Canning v. NLRB, which invalidated three presidential appointments to the NLRB, Mr. Hensarling asserted that “[a]bsent contrary guidance form the United States Supreme Court, Mr. Cordray does not meet the statutory requirements of a validly-serving Director” and the committee cannot legally accept testimony from him. Mr. Hensarling further indicated that the committee is not relinquishing its oversight role and expects the CFPB to make other employees and information available upon request. Committee Ranking Member Maxine Waters (D-CA) sent a letter one day later to the Chairman, stating that she will use the rules of the committee to allow Director Cordray to testify if the Chairman does not reverse his position.
Obama Administration Seeks Supreme Court Review of Recess Appointment Decision
On April 25, the DOJ and the National Labor Relations Board (NLRB) filed a petition seeking U.S. Supreme Court review of the D.C. Circuit Court’s January 25, 2013 decision invalidating the appointment of three NLRB members. Nat’l Labor Rel. Bd. v. Noel Canning, No. 12-1281 (cert. pet. filed, Apr. 25, 2013). The D.C. Circuit held that appointments to the NLRB made by President Obama in January 2012 during a purported Senate recess were unconstitutional. CFPB Director Richard Cordray was appointed in the same manner and on the same day as the NLRB members, and his appointment is the subject of a lawsuit currently pending in the U.S. District Court for the District of Columbia. The petition asks the Court to resolve two questions: (i) whether the President’s recess appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions, and (ii) whether the President’s recess appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess. If the Court accepts review of the case, it likely would be heard during the Court’s next session, which begins in October 2013.
CFPB Proposes Escrow Rule Amendments, Publishes Escrow Rule Compliance Guide
On April 12, the CFPB proposed a rule to amend aspects of its January 10, 2013 final rule on escrow account requirements for first-lien higher-priced mortgage loans (HPMLs). That rule expands existing escrow requirements for such loans and creates a new exemption for small creditors that operate predominantly in rural or underserved areas. The proposal explains that the CFPB did not intend for the escrow rule to state that the CFPB will designate or determine which counties are rural or underserved. Instead, the CFPB intended to require determinations of rural or underserved status to be made by creditors, but also intended for the CFPB to apply both tests to each U.S. county and publish an annual list of counties that satisfy either test for a given calendar year, which creditors may rely upon as a safe harbor. Further, the CFPB proposes clarifications to how rural or underserved status may be determined. The proposal notes that the amended factors also will apply to three other CFPB mortgage rules that provide rural and underserved exemptions. Finally, the proposal (i) notes that the final escrow rule inadvertently removed existing language that provided certain protections related to a consumer’s ability to repay and prepayment penalties for HPMLs, and (ii) seeks to establish a temporary provision to ensure the removed protections remain in effect until the expanded HPML protections take effect on January 10, 2014. The CFPB is accepting comments on the proposed amendments for 15 days following publication in the Federal Register. On April 18, the CFPB published a guide to help small entities comply with the escrow rule. More broadly, the CFPB believes the guide provides an “easy-to-use” summary of the rule for all creditors, as well as servicing market participants, software providers, and other creditor business partners. As with another compliance guide released last week, the CFPB notes that the guide is not a substitute for the rule and the Official Interpretations and does not consider other laws that may apply to the maintenance and administration of escrow accounts.
CFPB Announces Field Hearing on Student Loan Issues
On April 18, the CFPB announced a field hearing about student loan issues, to be held in Miami-Dade County on May 8, 2013. The CFPB has not yet announced witnesses but has stated the event will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public. In the past, the CFPB has made policy announcements in connection with field hearings. On April 8, the comment period closed on a CFPB notice and request for information regarding policy options to “increase the availability of affordable payment plans for borrowers with existing private student loans.” The CFPB also recently proposed a rule to allow it to supervise “larger participant” nonbank student loan servicers. The comment period for that proposal does not close until May 28, 2013.
CFPB Report Urges Adoption of Standards for Marketing Financial Adviser Services to Seniors
On April 18, the CFPB issued a report that reviews the marketing of investment adviser services to older Americans. The CFPB found that financial advisers use more than 50 different designations to market expertise in financial issues affecting seniors, which the CFPB claims creates confusion in the marketplace. The report includes detailed recommendations for the SEC and Congress related to (i) consumer education and disclosures, (ii) standards for the acquisition of senior designations, (iii) standards for senior designee conduct, and (iv) enforcement related to the misuse of senior designations. Among the recommendations, the CFPB suggests that policymakers consider requiring adviser education and standardized testing prior to obtaining a senior designation. The CFPB also suggests that the SEC and state policymakers consider increasing enforcement of misleading or other improper conduct by a holder of a senior designation and that state policymakers consider providing consumers with a private right of action to seek relief for the improper use of senior designations.
CFPB Publishes QM Rule Compliance Guide
On April 10, the CFPB published a guide to help small entities comply with its ability-to-repay/qualified mortgage rule. As required by the Small Business Regulatory Enforcement Fairness Act, the guide highlights issues for small creditors to consider when implementing the rule. More broadly, the CFPB believes the guide provides an “easy-to-use” summary of the rule for all creditors, as well as secondary market participants, software providers, and other vendors and creditor business partners. However, the CFPB notes that the guide is not a substitute for the rule and the Official Interpretations, and the guide does not consider other federal or state laws that may apply to the origination of mortgage loans. The CFPB also has prepared a chart that compares the general ability-to-repay requirements with requirements for originating qualified mortgages.
FDIC Announces Teleconference Series on CFPB Mortgage Rules
On April 9, the FDIC announced a series of nationwide banker teleconferences focused on the CFPB’s final mortgage rules. The first teleconference call is scheduled for May 2, 2013 and will focus on the ability-to-repay/qualified mortgage rule, the new escrow requirements, and certain aspects of the loan originator compensation rule. The second call is scheduled for May 15, 2013 and will address the CFPB’s final rule on mortgage servicing. The final call is scheduled for June 6, 2013 and will focus on the loan originator compensation rule and HOEPA amendments. The sessions are free, but individuals are required to register.
CFPB Announces First RESPA Enforcement Actions
On April 4, the CFPB announced enforcement actions against four mortgage insurers against which it filed complaints alleging that their captive reinsurance arrangements with mortgage lenders violated Section 8 of the Real Estate Settlement Procedures Act (RESPA). The actions are the first public actions the CFPB has taken to enforce RESPA, and follow investigations started by HUD and transferred to the CFPB in July 2011. The insurers did not admit the allegations but agreed to pay a combined $15.4 million to end the investigations. The consent orders also (i) prohibit the insurers from entering into any new captive mortgage reinsurance arrangements with mortgage lenders or their affiliates, and from obtaining captive reinsurance on any new mortgages, for a period of ten years, (ii) require the insurers to forfeit any right to the funds not directly related to collecting on reinsurance claims in connection with pre-existing reinsurance arrangements, and (iii) subject the insurers to compliance monitoring and reporting. The orders must be approved by the U.S. District Court for the Southern District of Florida before taking effect.
CFPB Announces Collection of Money Transfer Complaints
On April 4, the CFPB announced that it is collecting money transfer complaints. Although the CFPB previously was accepting some complaints about money transfers under the “bank account” topic in its complaint system, it now has a complaint portal dedicated to money transfer complaints. The system categorizes complaints as relating to: (i) money was not available when promised; (ii) wrong amount charged or received (transfer amounts, fees, exchange rates, taxes, etc.); (iii) incorrect/missing disclosures or information; (iv) other transaction issues (unauthorized transaction, cancellation, refund, etc.); (v) other service issues (advertising or marketing, pricing, privacy, etc.); or (vi) fraud or scam. The announcement does not indicate whether the money transfer complaints will be published in the recently expanded public database at this time.