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On December 18, the CFPB announced final rules adjusting the asset-size thresholds under HMDA (Regulation C) and TILA (Regulation Z). Both rules take effect on January 1, 2020.
Under HMDA, institutions with assets below certain dollar thresholds are exempt from the collection and reporting requirements. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $46 million to $47 million, thereby exempting institutions with assets of $47 million or less as of December 31, from collecting and reporting HMDA data in 2020.
TILA exempts certain entities from the requirement to establish escrow accounts when originating higher-priced mortgage loans (HPMLs), including entities with assets below the asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2.167 billion to $2.202 billion, thereby exempting creditors with assets of $2.202 billion or less as of December 31, from the requirement to establish escrow accounts for HPMLs in 2020.
On December 11, a payments company filed a lawsuit against the CFPB in the U.S. District Court for the District of Columbia alleging that the Bureau’s Prepaid Account Rule (Rule), which took effect April 1 and provides protections for prepaid account consumers, exceeds the agency’s statutory authority and is “arbitrary and capricious” under the Administrative Procedures Act (APA). The company further asserts that the Rule violates its First Amendment rights by requiring it to make confusing disclosures that contain categories not relevant to the company’s products. According to the complaint, the Rule mandates that the company send “short form” fee disclosures to customers that include references to fees for ATM balance inquiries, customer service, electronic withdrawal, international transactions, and other categories, and “prohibits [the company] from including explanatory phrases within the disclosure box to describe the nature of these fee categories.” These disclosures, the company asserts, have confused many customers who mistakenly believe the company charges fees to access funds stored as a balance with the company, to make a purchase with a merchant, or to send money to friends or family in the U.S. The company also claims that the Bureau erroneously lumped it into the same category as providers of general purpose reloadable cards (GPR cards), and argues that the Rule ignores how prepaid cards fundamentally differ from digital wallets, which has resulted in several unintended consequences.
The company asserts that the Rule is unlawful and invalid under the APA and the Constitution for three principal reasons:
- The Rule contravenes the Bureau’s statutory authority by (i) establishing a mandatory and misleading disclosure regime that is not authorized by federal law; and (ii) “impos[ing] a 30-day ban on consumers linking certain credit cards to their prepaid account—a prohibition the law nowhere authorizes the Bureau to impose.”
- Even if the Bureau possesses the statutory authority it claims to have, the rulemaking process was “fundamentally flawed” due to its one-size-fits-all Rule that misunderstands the different characteristics of digital wallets compared to GPR cards. By treating digital wallets as if they are GPR cards, the Rule violates the APA’s reasoned decision-making requirement. Additionally, the Rule is marked by “an insufficient cost-benefit analysis that failed to properly weigh the limited benefits consumers might derive from the Rule against the costs” stemming from the Rule’s changes.
- The Rule violates the First Amendment by failing to satisfy the heightened standard that a law or regulation “directly advances a substantial government interest” because it requires the company to makes certain disclosures that are irrelevant to its digital wallet product. Moreover, the Rule’s disclosure obligations “functionally impair the speech in which [the company] might otherwise engage” by mandating that it provide confusing and misleading disclosures about the nature of its offerings.
The complaint asks that the Rule be vacated and declared arbitrary, an abuse of discretion, not in accordance with the law, and unconstitutional, and additionally seeks injunctive relief, attorneys’ fees and costs.
On December 9, the CFPB released a special edition of its fall 2019 Supervisory Highlights, focusing on recent supervisory findings in the areas of consumer reporting and information furnishing to consumer reporting companies (CRCs). This is the second special edition to focus on consumer reporting issues, and follows a report that the Bureau released in March 2017 covered by InfoBytes here. According to the Bureau, recent supervisory reviews of FCRA and Regulation V compliance have identified new violations as well as compliance management system (CMS) weaknesses at CFPB-supervised institutions. However, the Bureau noted that examiners have also observed significant improvements, such as continued investment in FCRA-related CMS.
Highlights of the supervisory findings include:
- Recent examples of CMS weaknesses and FCRA/Regulation V violations (where corrective action has either been taken or is currently being taken) in which one or more (i) mortgage loan furnishers did not maintain policies and procedures “appropriate to the nature, size, complexity, and scope of the furnisher’s activities”; (ii) auto loan furnishers’ policies and procedures failed to provide sufficient guidance for investigating indirect disputes containing allegations of identity theft; (iii) debt collection furnishers’ policies and procedures failed to differentiate between FCRA disputes, FDCPA disputes, or validation requests, leading to a lack of consideration for applicable regulatory requirements when handling these matters; and (iv) deposit account furnishers lacked written policies and procedures for furnishing or validating the information provided to specialty CRCs.
- Examiners found that one or more furnishers provided information they knew, or had reasonable cause to believe, was inaccurate. Examples include inaccurate derogatory status codes due to coding errors and unclear addresses for consumers to submit disputes.
- Examiners discovered several instances where furnishers failed to send prompt notifications to CRCs after determining that information previously furnished was inaccurate, including situations where furnishers failed to promptly update or correct information after consumers paid charged-off balances in full or discharged them in bankruptcy.
- Examiners found that some furnishers reported the incorrect date of the first delinquency in connection with their responsibility to provide notice of delinquent accounts to CRCs.
- Examiners found several instances where furnishers failed to investigate disputes, complete investigations in a timely manner, or notify consumers of certain determinations related to “frivolous or irrelevant” disputes.
The Bureau also discussed supervisory observations concerning CRC compliance with FCRA provisions, and commented that CRCs continue to (i) improve procedures concerning the accuracy of information contained in consumer reports; (ii) implement improvements to prevent consumer reports from being furnished to users who lack a permissible purpose; (iii) strengthen procedures to “block information that a consumer has identified as resulting from an alleged identity theft”; and (iv) investigate and respond to consumer disputes.
On December 10, in a speech before the National Association of Attorneys General Capital Forum, CFPB Director Kathy Kraninger discussed partnership with the states, as well as recent efforts between the Bureau and states in the areas of supervision and enforcement, including innovation policies. Kraninger also discussed the Bureau’s small dollar and debt collection rules. Noting that the Bureau will “effectively enforce the law to fulfill our consumer protection mission … after thoroughly reviewing the facts,” Kraninger recapped FY 2019 enforcement actions and settlements, which have resulted in more than $777 million in total consumer relief, which included over $600 million in consumer redress and more than $174 million in other relief. These actions, Kraninger stated, have resulted in more than $185 million in civil money penalties, not taking into account suspended amounts. Kraninger also highlighted several joint efforts with states and other agencies over the past year, including (i) a multi-agency action resolving a 2017 data breach (InfoBytes coverage here); (ii) a joint action with the New York Attorney General against a network of New York-based debt collectors that allegedly engaged in improper debt collection tactics (InfoBytes coverage here); (iii) a coordinated action with the Minnesota Attorney General’s Office, the North Carolina Department of Justice, and the Los Angeles City Attorney concerning a student loan debt relief operation (InfoBytes coverage here); and (iv) an action with the South Carolina Department of Consumer Affairs against an operation that offered high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments (InfoBytes coverage here).
Kraninger also discussed the Bureau’s recently-announced American Consumer Financial Innovation Network (ACFIN), which is designed to enhance coordination among federal and state regulators to facilitate financial innovation. (InfoBytes coverage here). ACFIN currently includes nine state attorneys general and four state financial regulators. Kraninger noted that the Bureau is presently reviewing approximately 190,000 comments concerning proposed changes related to certain payday lending requirements and mandatory underwriting provisions (InfoBytes coverage here), as well as over 14,000 comments submitted in response to its Notice of Proposed Rulemaking issued in May concerning amendments to the debt collection rule (InfoBytes coverage here). Kraninger stressed that the Bureau plans to release a Supplemental Notice of Proposed Rulemaking “very early” in 2020, and will be “interested in practical and pragmatic ideas of how to make time-barred debt disclosures work.”
On December 9, parties filed briefs in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the U.S. Supreme Court granted cert in Seila to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II, while also directing the parties to brief and argue whether 12 U.S.C. §5491(c)(3), which sets up the CFPB’s single director structure and imposes removal for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional. While both parties are in agreement on the CFPB’s single-director leadership structure, they differ on how the matter should be resolved.
According to Seila Law’s brief, the CFPB’s single-director leadership structure is a blatant violation of the Constitution’s separation of powers clause. Seila Law proposes that the Court eliminate the CFPB entirely, leaving Congress to determine how to address the unconstitutionality of the Bureau, rather than save the law by making the director an at-will employee of the President. Removing the director at will, Seila Law argues, “would radically reshape the CFPB, creating a mutant version of the agency that Congress envisioned—one that would still be unaccountable to Congress, yet fully within presidential control.” Discussing the U.S. Court of Appeals for the Ninth Circuit’s reliance in part on a 1935 Supreme Court decision in Humphrey’s Executor v. United States (which dealt with removal protections for members of a nonpartisan, multimember commission) in its May ruling which held that the Bureau’s single-director structure is constitutional (InfoBytes coverage here), Seila Law states that the Court’s ruling in Humphrey’s Executor was “badly reasoned, wrongly decided, and should be overruled,” and, in any event, is distinguishable when addressing the CFPB’s single-director leadership structure. Whether the Court distinguishes or overturns Humphrey’s Executor’s precedent, Seila Law argues, it should hold that the Bureau’s structure violates the separation of powers clause and reverse the 9th Circuit’s judgment.
“By insulating the director of the CFPB from removal at will by the President while empowering him to exercise substantial executive power, Congress breached the President’s core prerogatives under Article II of the Constitution,” Seila Law further asserts, claiming that the appropriate remedy for the constitutional violation would be to deny the CFPB’s petition to enforce the CID and ultimately let Congress determine how to address the “constitutional defect in the CFPB’s structure.” Seila Law also argues that should the Court decide to engage in severability analysis, it should invalidate all of Title X of Dodd-Frank, which does not allow the current leadership structure to be altered to a multi-member commission.
In contrast, though the CFPB concedes that Dodd-Frank’s restriction on the President’s ability to remove the Bureau’s director violates the “separation of powers” principles of the Constitution, it contends in its brief that, should the removal provision be found unconstitutional, it should be severed from the rest of the law in accordance with Dodd-Frank’s express severability clause. “Even considering only the Bureau-specific provisions contained in Title X . . . , there is no basis to conclude that Congress would have preferred to have no Bureau at all rather than a Bureau headed by a Director who would be removable like almost all other single-headed agencies,” the CFPB wrote. “Nothing in the statutory text or history of the Bureau’s creation suggests, much less clearly demonstrates, that Congress would have preferred, for example, that the regulatory authority vested in the Bureau revert back to the seven federal agencies that previously administered those responsibilities if a court were to invalidate the Director’s removal restriction.”
Oral arguments are scheduled for March 3, 2020.
On December 5, Senators Elizabeth Warren and Sherrod Brown wrote a letter to CFPB Director Kathy Kraninger seeking information regarding the Bureau’s plans for a program to issue formal advisory opinions. As previously covered by InfoBytes, the CFPB in September announced three new policies to “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty,” including the mention of an “advisory opinion program” in the final policy announcement for one of the new policies. According to the letter, the Senators have concerns that CFPB guidance issued through advisory opinions has the potential to “exempt companies from complying with consumer protection laws” and “allow political employees to unduly influence and restrict the application of the consumer laws.” The letter lays out a number of questions for Director Kraninger regarding the CFPB’s use of advisory opinions, including whether all opinions will be made public, whether the facts and circumstances leading to a request for an opinion will be investigated, whether all opinions will be in writing, and who will draft them. Specifically, the letter questions the role of political appointees “at each stage of the advisory opinion process.” The letter requests that the Bureau respond to the questions by December 19.
On December 10, the CFPB released the latest quarterly consumer credit trends report, which evaluated the extent to which removal of public records from credit reports affects consumer credit scores and credit performance. As previously covered by InfoBytes, the three major U.S. credit reporting agencies began using stricter guidelines when considering consumer public records, such as tax liens and civil judgments, to be included in consumer credit reports as a result of the National Consumer Assistance Plan (NCAP). The NCAP, among other things, imposed restrictions on medical debt reporting and civil public records such as tax liens, civil judgments, and bankruptcies. Observing that the “NCAP public records provision resulted in the removal of all civil judgments and almost half of tax liens from credit reports by the end of July 2017,” this report compared consumer credit scores and credit performance for consumers that had public records removed from their credit report and consumers who did not. According to the report, “there was only a slight increase in credit scores following the NCAP,” and “the NCAP did not seem to have a large effect on the relationship between credit scores and consumers’ credit performance for consumers whose credit report included a lien or judgment compared with consumers whose credit report did not.”
On December 3, the Federal Reserve, the CFPB, the FDIC, the NCUA, and the OCC (agencies) issued an Interagency Statement on alternative data use in credit underwriting, highlighting applicable consumer protection laws and noting risks and benefits. (See press release here). According to the statement, alternative data use in underwriting may “lower the cost of credit” and expand credit access, a point previously raised by the CFPB and covered in InfoBytes. Specifically, the potential benefits include: (i) increased “speed and accuracy of credit decisions”; (ii) lender ability to “evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system”; and (iii) consumer ability “to obtain additional products and/or more favorable pricing/terms based on enhanced assessments of repayment capacity.” “Alternative data” refers to information not usually found in traditional credit reports or typically provided by customers, including for example, automated “cash flow evaluation” which evaluates a borrower’s capacity to meet payment obligations and is derived from a consumer’s bank account records. The statement indicates that this approach can improve the “measurement of income and expenses” of consumers with steady income over time from multiple sources, rather than a single job. The statement also recognizes that the way in which entities use alternative data—for example, implementing a “Second Look” program, where alternative data is only used for applicants that would otherwise be denied credit—can increase credit access. The statement points out that use of alternative data may increase potential risks, and that those practices must comply with applicable consumer protection laws, including “fair lending laws, prohibitions against unfair, deceptive, or abusive acts or practices, and the Fair Credit Reporting Act.” Therefore, the agencies encourage entities to incorporate appropriate “robust compliance management” when using alternative data in order to protect consumer information.
On December 3, the CFPB issued a Notice of Proposed Rulemaking (NPRM) relating to the Remittance Transfer Rule (Rule), which implements the Electronic Fund Transfer Act’s (EFTA) protections for consumers sending international money transfers, or remittance transfers. The NPRM makes three proposals. First, the Bureau proposes to increase the Rule’s safe harbor threshold, mitigating compliance costs for financial institutions. The EFTA and the Rule consider a “remittance transfer provider” to include “any person that provides remittance transfers for a customer in the normal course of business.” However, the Rule currently includes a “safe harbor” provision that excludes persons that process 100 or fewer remittance transfers annually. The NPRM proposes increasing this threshold from 100 to 500 international remittance transfers per year. According to the Bureau’s announcement, the change would “reduce the burden on over 400 banks and almost 250 credit unions that send a relatively small number of remittances—less than .06 percent of all remittances.”
Second, the NPRM proposes adopting two permanent exceptions. The first is a permanent statutory exception that would allow certain insured institutions to estimate exchange rates and money transfer fees they are required to disclose, rather than provide consumers with exact costs when they send money abroad. Such an exemption would only apply in instances where a remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year. An identical exemption provision is currently set to expire July 21, 2020. (Previous InfoBytes coverage here.) The NPRM proposes adopting a second permanent exception to allow insured institutions to estimate covered third-party fees for remittance transfers to a recipient’s institution provided, among other things, the insured institution made 500 or fewer remittance transfers to the recipient’s institution the prior calendar year.
Third, the NPRM requests comments on a list of safe harbor countries for which providers may use estimates for remittance transfers.
Comments must be received 45 days after publication in the Federal Register. In conjunction with the NPRM, the Bureau also released a summary of the NPRM, a table of contents, and an unofficial redline of the proposed amendments to the Rule.
On November 22, in a speech at The Clearing House + Bank Policy Institute Annual Conference, CFPB Director Kathy Kraninger noted that the Bureau is considering changes to its consent order process to “ensur[e] consent orders remain in effect only as long as needed to achieve their desired effects.” Specifically, Kraninger discussed that while most consent orders are effective for five-year periods and companies can request early termination or termination of indefinite orders, the Bureau has only terminated “a few” consent orders in the past. Similar to the Bureau’s recent changes to its Civil Investigative Demand (CID) policy (covered by InfoBytes here), Kraninger stated that the Bureau intends to announce an updated consent order policy “soon,” in order to “provide clarity and consistency.”
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the Puerto Rican Symposium of Anti Money Laundering
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the Mortgage Bankers Association Servicing Solutions Conference & Expo
- Jonice Gray Tucker and H Joshua Kotin to discuss regulatory compliance issues in the fintech industry at Protiviti's Risk & Compliance Innovation Roundtable
- APPROVED Checkpoint Webcast: CFL overview
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- Brandy A. Hood to discuss "RESPA 8 (TRID applied compliance)" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Critique of direct examination; Questions and answers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Hank Asbill to discuss "What judges want from trial lawyers" at the American Bar Association Section of Litigation Anatomy of a Trial: Murder Trial of Ziang Sung Wan
- Steven R. vonBerg to speak at the "Conference super session" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference