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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 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.
On October 26, the OCC announced plans to establish an Office of Innovation (Office) with staff located in Washington, New York, and San Francisco. The OCC simultaneously published a paper titled “Recommendations and Decisions for Implementing a Responsible Innovation Framework,” which provides an overview of the financial services landscape and the OCC’s innovation initiatives. With the expectation to begin operations in first quarter 2017, the new Office will implement certain aspects of the OCC’s responsible innovation framework, including: (i) creating an outreach and technical assistance program; (ii) conducting awareness and training activities for OCC staff, such as implementing an “internal web page that provides OCC staff a ‘one-stop-shop’ to access information on industry trends and innovative products, services, and processes”; (iii) encouraging coordination and facilitation among the regulatory community and industry stakeholders; (iv) conducting industry innovation research; and (v) promoting coordination with other agencies, particularly those with overlapping jurisdictions. Beth Knickerbocker will head the Office as acting Chief Innovation Officer.
The OCC noted that its “assessment of granting a special purpose national bank charter to nonbank financial technology companies, and under what conditions, continues.” Later in 2016, the OCC plans to publish a paper to address issues related to a potential special purpose charter.
On June 22, the CFPB released its eleventh issue of Supervisory Highlights specifically to address recent supervisory examination observations of the mortgage servicing industry. According to the report, mortgage servicers continue to face compliance challenges, particularly in the areas of loss mitigation and servicing transfers. The report attributes compliance weaknesses to outdated and deficient servicing technology, as well as the lack of proper training, testing, and auditing of technology-driven processes. Notable findings outlined in the report include the following: (i) multiple violations related to servicing rules that require loss mitigation acknowledgment notices, observing deficiencies with timeliness and content of acknowledgement notices; (ii) violations regarding servicer loss mitigation offer letters and other related communications, including unreasonable delay in sending letters; (iii) failure to state the correct reason(s) in letters to borrowers for denying a trial or permanent loan modification option; (iv) failure to implement effective servicing policies, procedures, and requirements; and (v) heightened risks to consumers when transferring loans during the loss mitigation process. Although the report focuses largely on mortgage servicers’ continued violations, it acknowledged that certain servicers have significantly improved over the past several years by, in part, “enhancing and monitoring their servicing platforms, staff training, coding accuracy, auditing, and allowing for great flexibility in operations.”
In addition to outlining Supervision’s examination observations of the mortgage servicing industry, the report also notes that the CFPB’s Supervision and Examination Manual was recently updated to reflect regulatory changes, technical corrections, and updated examination priorities in the mortgage servicing chapter.
On August 7, OCC Comptroller Thomas Curry delivered remarks at the Federal Home Loan Bank of Chicago, which was hosting a conference highlighting the future of financial services. Specifically, Curry discussed innovation in the emerging financial technology industry, or “fintech,” noting the risks and benefits associated with mobile payments, virtual currency, and peer-to-peer lending products within the U.S. banking system. With respect to virtual currency, Curry stressed how important it is for financial institutions to implement adequate procedures to deter money laundering and terrorist financing. Curry also recognized that the OCC is “still early in the process” of evaluating a regulatory framework to examine some new and innovative products and services. Rounding out his remarks, Curry expressed his growing concerns with so called “neobanks,” which operate primarily online but provide similar services to brick and mortar retail branch banks, including the heightened privacy risks that neobanks present in light of recent cybersecurity attacks.
On July 16, 2015, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) launched the first in a new series of monthly complaint reports highlighting key trends from consumer complaints submitted to the CFPB. Importantly, its monthly report provides significant detail on the complaints the CFPB has received, including the names of the companies that received the largest number of complaints.
Currently, the most-complained-about companies are also the largest bank and nonbank financial institutions in the country. Since these institutions have the highest numbers of customers, it is only natural that they have received the highest number of complaints. On the same day as the monthly report’s release, CFPB Director Richard Cordray provided remarks at an Americans for Financial Reform event in Washington, D.C. Director Cordray noted that in future monthly reports, the CFPB hopes to “normalize” its consumer complaint data by accounting for financial institutions’ respective size and volume. To that end, the CFPB issued a Request for Information seeking input on ways to enable the public to more easily understand company-level complaint information and make comparisons. The comment period closes August 31, 2015.
The report also provides data on complaint volume, state and local complaint information, and trends relating to specific consumer financial products or services. In June 2015, for example, debt collection was the most-complained-about product or service with the 32% of complaints filed with the Bureau, while complaints relating to mortgages and credit reporting were next in line.
Going forward, each monthly report will spotlight a particular financial product and geographic area. In the first report, the CFPB closely examines debt collection complaints and complaints from consumers in Milwaukee, Wisconsin.
The CFPB began accepting complaints in July 2011 and launched its Consumer Complaint Database in June 2012, which is the nation’s largest public collection of consumer financial complaints. As of July 1, 2015, the CFPB has handled 650,700 complaints.
In its press release for the monthly report, the Bureau issued a reminder that it expects companies to respond to CFPB complaints within 15 days. The Bureau also expects companies to describe the steps they have taken or intend to take to resolve each consumer complaint. In fact, in its monthly report, the Bureau provided statistics on how often certain debt collection companies were “untimely” in responding to complaints.
Notably, the CFPB stressed that complaints inform the Bureau’s work and can directly feed into its supervision and enforcement prioritization process. “Consumer complaints are the CFPB’s compass and play a central role in everything we do. They help us identify and prioritize problems for potential action,” said CFPB Director Cordray. The publication of this monthly report, together with continuing consumer complaint initiatives from the CFPB, highlights the critical importance of developing an effective complaint management program.
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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.
- Jonice Gray Tucker, (202) 349-8005
- Clinton R. Rockwell, (310) 424-3901
- Jeffrey P. Naimon, (202) 349-8030
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Kari K. Hall, (202) 349-7967
- Daniel Cheriyan, (202) 461-2917
OCC Comptroller Discusses Emerging Payment Systems Technology and Cybersecurity, FFIEC Set to Release Cybersecurity Assessment Tool
On June 3, in prepared remarks delivered at the BITS Emerging Payments Forum, OCC Comptroller Thomas Curry advised that as financial institutions continue to develop payment systems, banks need better preparation for potential cyber-risks. Curry warned that “[c]yber criminals will also probe emerging payment systems for vulnerabilities that they can exploit to engage in money laundering[.]” In addition, Curry advocated for more regulatory oversight of digital currencies and non-bank mobile payment providers, such as ApplePay and Google Wallet. Addressing cybersecurity concerns, Curry called for increased information-sharing to promote best practices and strengthen cybersecurity readiness among the banking industry. In particular, he urged financial institutions – of all sizes – to participate in the Financial Services Information Sharing and Analysis Center, or FS-ISAC, a non-profit founded by the banking industry to facilitate the sharing and dissemination of cybersecurity threat information. Moreover, Curry confirmed that the FFIEC will soon be releasing a Cybersecurity Assessment Tool for financial institutions to use when evaluating their cybersecurity risks and risk management capabilities, observing that the tool will be particularly helpful to community banks as cybersecurity threats continue to increase.
On April 27, the Conference of State Bank Supervisors (CSBS) announced that three working groups of state regulators – the State Coordinating Committee (SCC), the Multi-State Mortgage Committee (MMC), and the Multi-State MSB Examination Task Force (MMET) – issued annual reports to state regulators regarding their 2014 operations and progress. Responsible for information sharing and examination work with the CFPB, the SSC report outlines the two agencies’ 9 joint examinations. The MMC – established as the “oversight body for multi-state mortgage supervision” in 2008 – is responsible for coordinated, multi-state mortgage exams, and its report covers the 6 joint mortgage examinations conducted with the CFPB in 2014. Finally, the MMET supervises the money services businesses; its report highlights 57 examinations conducted jointly with the CFPB in 2014.
On March 25, the Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators (“AARMR”) issued a proposal seeking public comment on its Proposed Regulatory Prudential Standards for Non-bank Mortgage Servicers. According to the CSBS, the proposal is in response to an increasing number of non-bank servicers that continue to acquire mortgage servicing rights, and subsequently, require enhanced state regulation to (i) provide better safeguards for borrowers, investors, and other stakeholders, (ii) increase regulatory oversight and market discipline over non-bank mortgage servicers, and (iii) enhance transparency, accountability, risk management and corporate governance standards. Comments on the proposal must be received by June 25, 2015.
CFPB Releases Winter Issue of Supervisory Highlights, Schedules Date for Field Hearing on Payday Lending
On March 11, the CFPB released its seventh issuance of Supervisory Highlights, which highlights the CFPB’s supervision work completed between July 2014 and December 2014, detailing examination findings and observations in consumer reporting, debt collection, deposits, mortgage origination, and fair lending examinations. The winter issue also reveals recent supervisory resolutions reached in the areas of payday lending, mortgage servicing, and mortgage origination have resulted in remediation of approximately $19.4 million to more than 92,000 consumers during the time reported. Other notable information included within the report is the addition of Credit Card Account Management examination procedures to the CFPB’s Supervision and Examination Manual. In a separate announcement, the CFPB also announced it will host a field hearing on payday lending, scheduled for Thursday, March 26 in Richmond, VA.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" 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
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable