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On February 6, the CFPB released two notices of proposed rulemaking (NPRM) related to certain payday lending requirements under the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). As previously covered by InfoBytes, last October the Bureau announced plans to reconsider the Rule’s mandatory underwriting requirements and address the Rule’s compliance date.
The first NPRM proposed will rescind certain provisions of the Rule related to underwriting standards for payday loans and related products scheduled to take effect later this year. Specifically, the CFPB proposes to rescind the portion of the Rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay. The proposed changes would also rescind prescribed mandatory underwriting requirements for making the ability-to-repay determination, provisions exempting certain loans from the mandatory underwriting requirements, as well as related definitions, reporting, and recordkeeping requirements. The CFPB explains that it now initially determines that the evidence underlying the identification of the unfair and abusive practice in the Rule “is not sufficiently robust and reliable to support that determination, in light of the impact those provisions will have on the market for covered short-term and longer-term balloon-payment loans, and the ability of consumers to obtain such loans, among other things.” If finalized, the proposals represent a significant change to the Rule as finalized during the tenure of former Bureau Director Richard Cordray in October 2017. (See Buckley Special Alert for more detailed coverage on the Rule.) Comments will be accepted for 90 days following publication in the Federal Register.
The second NPRM seeks to delay the Rule’s compliance date for mandatory underwriting provisions from August 19, 2019 to August 19, 2020. Notably, the Bureau states in a press release announcing the NPRMs that the proposal to delay the effective date does not extend to the Rule’s provisions governing payments, which “prohibit payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals.” Lenders also will still be required to provide written notice to consumers both before the first attempt to withdraw payment from their accounts, as well as prior to subsequent attempts involving different dates, amounts, or payment channels. These provisions are not under reconsideration and will take effect August 19, 2019. Comments will be accepted for 30 days following publication in the Federal Register.
On January 25, the CFPB released FAQs to assist with TILA-RESPA Integrated Disclosure Rule (TRID) compliance. Three of the four FAQs relate to corrected closing disclosures and the three business-day waiting period, while the fourth FAQ relates to the use of model forms. Highlights of the FAQs include:
- Under TRID, a creditor must ensure that a consumer received a corrected Closing Disclosure at least three business days before consummation of the transaction (i) for certain APR changes; (ii) if the loan product information changes; or (iii) if a prepayment penalty has been added to the loan. Any of these changes would trigger a new three business-day waiting period.
- A corrected Closing Disclosure is required under TRID if the APR changes, including if it decreases. If the change in the APR is within applicable tolerances under Regulation Z, the creditor may provide the new Closing Disclosure without triggering a new three business-day waiting period. If the change in the APR is outside applicable tolerances, the creditor must wait three business days before consummation.
- Section 109(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act did not change the timing for consummating transactions if a creditor is required to provide a corrected Closing Disclosure under TRID.
- A creditor is deemed in compliance with the disclosure requirements of TRID if it uses the appropriate model forms provided by the Bureau and properly completes them with accurate content.
CFPB files proposed consent order banning certain Canadian and Maltese payday lenders from U.S. consumer lending
On February 1, the CFPB and a group of payday lenders, including individuals and corporate officials based in Canada and Malta (collectively, “defendants”), filed a proposed consent order with the U.S. District Court for the Southern District of New York that would resolve allegations that the defendants violated the Consumer Financial Protection Act. According to the Bureau’s press release, the defendants allegedly (i) misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws; (ii) misrepresented that loan agreements were not subject to federal or state laws; (iii) misrepresented that non-payment would result in lawsuits, arrests, imprisonment, or wage garnishment; and (iv) conditioned loan agreements upon irrevocable wage assignment clauses. Under the terms of the proposed order, the defendants would be, among other things, (i) permanently banned from consumer lending in the U.S.; (ii) permanently restrained from the collection or sale of existing U.S. consumer debts; and (iii) subject to certain reporting and recordkeeping requirements. The proposed order does not impose a fine on the defendants.
On February 4, the CFPB released a request for public comment on a new information collection titled, “Debt Collection Quantitative Disclosure Testing.” The proposed collection—which seeks Office of Management and Budget approval to conduct a web survey as part of the Bureau's debt collection disclosure research—“will explore consumer comprehension and decision making in response to debt collection disclosure forms.” Comments must be received by March 6.
On January 31, the CFPB published a new reference chart titled “Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart for Data Collected in 2019.” The chart is designed to be used as a reference tool for required data points to be collected, recorded, and reported under Regulation C, as amended by HMDA rules issued October 15, 2015, and August 24, 2017, as well as section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (implemented and clarified by the 2018 HMDA Rule, which was previously covered by InfoBytes here.) The Bureau noted that this chart does not provide HMDA loan/application register data fields or enumerations, and further emphasized that the chart “does not itself establish any binding obligations” and is not intended to be viewed as a “substitute for the regulation or its official commentary.”
On January 29, the CFPB released a report on mortgage complaints, and a corresponding blog post, which provide a high-level overview of the mortgage complaints received by the Bureau during the last 24 months. According to the report, mortgage complaints accounted for 11 percent, or approximately 71,000 complaints, of the total complaints the Bureau received from November 2016 through October 2018. An analysis of the complaints indicated that 42 percent of them had to do with issues concerning the payment process, while 36 percent had to do with difficulties in paying off the mortgage. Consumer complaints regarding payment process problems describe a variety of issues, including misapplied payments and escrow analysis inaccuracies. The CFPB notes that complaints from consumers struggling to pay their mortgages often state they have difficulty receiving assistance after a financial hardship, illness, or a natural disaster.
Additional highlights of the report include: (i) the number of mortgage complaints received between August 2018 and October 2018 was 15 percent lower than the number of mortgage complaints received during the same time period in 2017; (iii) 50 percent of mortgage complaints relate to conventional mortgages; and (iii) adjusted for population, the largest mortgage complaint volumes came from the District of Columbia, Maryland and New Jersey.
On January 31, the CFPB published a request for information (RFI) on the consumer credit card market. Section 502 of the Credit Card Accountability and Responsibility Disclosure Act (CARD Act) of 2009 requires the Bureau to conduct a review of the consumer credit card market every two years and to seek public comment to assist in that review. While the Bureau seeks feedback on all aspects of the consumer credit card market, the RFI specifically seeks comments related to, among other things, (i) the terms of credit card agreements and the practices, such as collection efforts, of credit card issuers; (ii) the effectiveness of disclosures related to rates, fees, and other cost terms; (iii) prevalence of unfair, deceptive, or abusive acts or practices in the market; and (iv) credit card product innovation. Comments must be received by May 1, 2019.
On January 23, the CFPB announced a settlement with an online loan broker resolving allegations that the broker violated the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments. Specifically, the CFPB alleges the broker (i) misrepresented the contracts he facilitated as valid, when, in fact, under federal law veterans’ pension payments are unassignable; (ii) misrepresented to consumers that the offer was a “sale” of a product not a high-interest credit offer; (iii) misrepresented to consumers when they would receive their loan funds; and (v) failed to disclose the applicable interest rate on the loans. Under the program, veterans were also required to obtain life insurance policies in order to ensure the outstanding amount would be repaid even if the veteran died. Under the terms of the consent order, the broker is prohibited from engaging in the specified conduct in the future and is required to assist the Bureau in identifying and locating the veterans who were harmed. The Bureau required the broker to pay $1 in civil money penalties, based on his financial statements.
On January 24, the CFPB’s Office of Servicemember Affairs (OSA) released an annual report, which highlights issues facing military consumers based on complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). The OSA report covers the period between April 1, 2017 and August 31, 2018, during which the Bureau received approximately 48,800 military complaints. Some key takeaways from the OSA report are as follows:
- The largest category of servicemember complaints focused on credit reporting, with 37 percent of total servicemember complaints in this area. The report notes that the Department of Defense’s new security clearance process increases the likelihood that a servicemember’s poor credit score could result in losing a security clearance, and by extension being separated from the military.
- After credit reporting, debt collection was the next most complained about issue. Most servicemembers’ debt collection complaints alleged that the servicemember did not owe the debt or that the debt collector failed to respond to written requests for information. In particular, the report states that some debt collectors have inappropriately contacted servicemembers’ chains of command in an attempt to obtain payment.
- For mortgage debt, the largest category of complaints arose from challenges in the payment process—in particular issues related to loan modifications, collections, communicating with the servicemember’s “single point of contact,” escrow, and servicing transfers. These process-focused complaints were closely followed by overall difficulties in being able to afford mortgage payments.
- For credit cards, the greatest concentration of complaints were around problems with purchases on statements (i.e. fraudulent/unauthorized charges, billing frustrations, and difficulties in challenging charges directly with the credit card issuer). Notably, while the report acknowledges the October 2017 Military Lending Act compliance date for credit card issuers, it does not specifically break out MLA-related complaints; rather, the report notes that the Bureau has received “some complaints from servicemembers demonstrating confusion with respect to how and when creditors are applying the MLA’s protections to credit card accounts.”
- For auto lending, the leading category of complaints arose from managing the loan or lease, including application of payments and late fees. Unique to servicemembers, the report highlights that products like GAP can become void if a servicemember takes a car overseas (for example, to use while on deployment).
- For student lending, two-thirds of complaints arose from challenges in making payments and enrolling in payment plans, in particular issues with enrolling and recertifying eligibility for income-driven repayment.
- Finally, in the payday loan space, since 2016 servicemember complaints have decreased drastically and are now equal with non-servicemember complaints (as a percentage of total complaint volume); previously, servicemembers were almost twice as likely to complain about payday loan products.
On January 10, the CFPB released the assessment reports required by Section 1022(d) of the Dodd-Frank Act for two of its 2013 mortgage rules: the TILA Ability-to-Repay and Qualified Mortgage (ATR/QM) Rule and the RESPA Mortgage Servicing Rule. The assessment reports were conducted using the Bureau’s own research and external sources. The reports do not include a benefit-cost analysis of either rule, nor do they propose amendments to the rules or contain any other policy recommendations. However, the Bureau expects the reports to be used to “inform the Bureau’s future policy decisions.”
The ATR/QM Rule became effective in January 2014 and generally requires that lenders make a reasonable and good faith determination, based on documented information, that the borrower has the reasonable ability to repay the mortgage loan. Highlights of the report’s findings include:
- While it is difficult to distinguish the effects of the ATR/QM Rule and the marketwide tightening of underwriting standards following the housing crisis, the rule may have restricted the reintroduction of certain types of loans that were associated with high delinquency or foreclosure rates, such as loans based on limited or no documentation of income or assets, loans with low initial monthly payments that reset after a period of time, and loans with high debt-to-income ratios.
- The ATR/QM Rule was not generally associated with an improvement in loan performance, as measured by the percentage of loans becoming 60 or more days delinquent within two years of origination.
- The ATR/QM Rule did not impact access to credit for self-employed borrowers who were eligible for a GSE loan. For other self-employed borrowers, the Bureau acknowledged lenders may find it difficult to comply with the Appendix Q documentation and calculation requirements but found that approval rates for this population decreased only slightly.
- While the costs of originating a mortgage loan have increased substantially over time, the ATR/QM Rule does not appear to have materially increased the lenders’ costs or the prices the lenders charged to consumers, at an aggregate market level. However, based on data from nine lenders, the Bureau estimated the foregone profits from not originating certain types of non-QM loans at $20-$26 million per year.
- Contrary to the Bureau’s expectations when it issued the ATR/QM Rule, the GSEs have maintained a persistently high share of the market, and the market for non-QM loans remains relatively small.
The Mortgage Servicing Rule became effective in January 2014 and, among other things, imposes procedural requirements on servicers with respect to loss mitigation and foreclosure for delinquent borrowers. Highlights of the report’s findings include:
- Loans that became delinquent were less likely to proceed to a foreclosure during the months after the Mortgage Servicing Rule’s effective date compared to months prior to the effective date and were more likely to return to current status. For borrowers who became delinquent the year the rule took effect, the Bureau estimated that, absent the rule, at least 26,000 additional borrowers would have experienced foreclosure within three years, and at least 127,000 fewer borrowers would have recovered from delinquency within three years.
- The cost of servicing mortgage loans has increased substantially; the main increase in costs occurred before the Mortgage Servicing Rule took effect and is not attributable to the rule. However, some servicers reported significant ongoing costs of complying with the rule, which can be attributable with the need for “robust control functions” and higher personnel costs to support increased communication with delinquent borrowers.
- The time from borrower initiation of a loss mitigation application to short-sale offer increased in 2015 compared to 2012.
- A larger share of borrowers who completed loss mitigation applications in 2015 were able to avoid foreclosure than borrowers who completed loss mitigation applications in 2012.
- The rate of written error assertions per account fell by about one-half after the Mortgage Servicing Rule’s effective date compared to the prior three years.
- There was a moderate decrease in the share of borrowers receiving force-placed insurance and the Rule’s effective date, which can be attributable to the Rule but also to the changes in the insurance market.
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- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
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