InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Banking Industry Trade Groups Oppose CFPB Credit Card Arbitration Survey
On August 6, three banking industry trade groups submitted a joint comment letter pursuant to a proposal by the CFPB to conduct a survey of credit card holders in connection with its ongoing study of arbitration agreements. The survey — intended to evaluate “consumer awareness of dispute resolution provisions in their agreements with credit card providers” — will compile information relating to card holders’ perceptions and valuations of arbitration and litigation, but will not solicit impressions of such proceedings themselves. In the comment letter, the trade groups suggest that the survey’s design “is inconsistent with the Consumer Financial Protection Act (CFPA) mandate and is flawed in concept and execution.”
Section 1028 of the CFPA authorizes the Bureau to study, and potentially regulate, arbitration agreements. Any exercise of rulemaking authority under Section 1028 must be based on a finding —consistent with the study conducted — that the regulation is “in the public interest and for the protection of consumers.” The trade groups express concern that the proposed survey will not produce “meaningful” information about what regulation will best serve the public and protect consumers because complex questions about consumers’ “limited and uninformed assessments and preferences” will fail to offer useful information to evaluate the arbitration process. The trade groups suggest that, instead, the CFPB should pursue peer-reviewed research that compares various methods of consumer dispute resolution, such as litigation and arbitration, to meet its obligations under the CFPA.
Banking Industry Trade Groups Oppose Expansion of MLA Covered Loans
On August 1, six banking industry trade groups submitted a joint comment letter relating to a proposal by the Department of Defense (DOD) to revise protections under the Military Lending Act (MLA), which apply to consumer credit extended to members of the military and their families. Among other things, the MLA caps the annual interest on short-term, small-dollar loans — including certain payday, car title, and refund anticipation loans. The MLA does not currently include credit cards, bank loans secured by funds on deposit, installment loans, or open-end credit.
In June, the DOD issued an advanced notice of proposed rulemaking (ANPR) to solicit input on potential changes to the definition of “consumer credit” in the regulations that implement the MLA, which would significantly broaden its application. The ANPR sought comment on whether the definition of “consumer credit” should be revised to expand coverage of the MLA to additional small-dollar loan products. The trade groups suggest that expanding coverage would be redundant, costly, and confusing in light of the “well-established system of financial protections for consumers [that] exists beyond the [MLA].” In other words, there is no need to create an entirely separate class of credit products for servicemembers and their families not directly related to military service.
The trade groups specifically identify several potential negative consequences of expanded coverage, including reduced access to installment loans and other credit products, and inability to refinance existing credit. On balance, the trade groups view the current rules — adopted after plenary discussion and careful consideration by all stakeholders — to be effective in achieving the proper balance between protecting military families and ensuring their access to credit. Thirteen state attorneys general took an opposing view in a comment letter submitted on June 24.
For additional commentary on the ANPR, please see the recent article from BuckleySandler Partner Valerie Hletko.
Bipartisan Student Loan Certainty Act Passes; Industry Trade Groups Request TILA Compliance Grace Period
The Bipartisan Student Loan Certainty Act passed Congress last week and is awaiting the President’s signature. When signed, it will lower the interest rates for federal student loans made on or after July 1, 2013, but also will create some immediate compliance burdens for lenders and servicers. On August 5, four industry trade groups submitted a letter asking the CFPB to (i) implement a 30-day grace period (from enactment) for lenders and servicers to make necessary system changes and update TILA disclosures, and (ii) clarify that lenders and servicers will not be required to modify TILA disclosures provided prior to or during the grace period. Noting that this “will be the second time in less than 45 days that the interest rate for subsidized Stafford loans has changed,” and that the law mandates “an immediate and broad shift in the entire interest rate structure for all Federal Direct Loans,” the letter identifies the significant challenges in complying with the new structure, including the challenges to lenders and servicers in accurately disclosing interest rates as required by TILA. As precedent for the requested transition period, the trade groups refer to the Federal Reserve Board’s allowance for a transition period when it wrote the private student loan regulations in 2009.
Buckley Sandler Joins the Law Firm Sustainability Network
BuckleySandler LLP is proud to support the Law Firm Sustainability Network. The firm believes that by working collaboratively with others in the legal industry, it can have an ever greater impact on preserving the environment. In that spirit, BuckleySandler has joined the Law Firm Sustainability Network and support its mission to develop key performance indicators, foster knowledge-sharing, develop best practice guidelines, and recognize innovation regarding environmental sustainability.
California Supreme Court Holds Borrowers Can Bring State Law Claims Based on TISA Violations
On August 1, the California Supreme Court held that the federal Truth in Savings Act (TISA), which does not provide a private right of action, does not similarly bar state law claims derived from alleged TISA violations. Rose v. Bank of Am., N.A., No. S199074, 2013 WL 3942612 (Cal. Aug. 1, 2013). In this case, a putative class filed suit claiming a bank violated the state’s Unfair Competition Law (UCL) when it failed to provide certain disclosures required by TISA. The trial and appellate courts held that because Congress amended TISA in 2001 to remove its private right of action, before the borrowers filed their TISA-based class claims, those claims were barred. The appellate court explained that Congress’s repeal of the private right of action reflected its intent to bar any private action to enforce TISA. The Supreme Court disagreed and held that Congress’s decision to leave TISA’s savings clause in place explicitly allowed for the enforcement of state laws relating to the disclosures at issue here, except to the extent that those laws are inconsistent with the relevant TISA provision. The court rejected the bank’s argument that the UCL may not be employed to borrow directly from a federal statute where Congress has not provided a private right of action, holding instead that “when Congress permits state law to borrow the requirements of a federal statute, it matters not whether the borrowing is accomplished by specific legislative enactment or by a more general operation of law.” The court reversed the appeals court’s judgment.
Congress Passes Reverse Mortgage Legislation; Senate Banking Committee Approves Broader FHA Reform Legislation
On July 30, the U.S. Senate passed by unanimous consent the Reverse Mortgage Stabilization Act, H.R. 2167. The bill, which was passed by the House in June and now goes to the President for his signature, will allow HUD to use notices or mortgagee letters to establish additional or alternative requirements necessary to improve the fiscal safety and soundness of the Home Equity Conversion Mortgage (HECM) program.
On July 31, the Senate Banking Committee voted 21-1 to approve the FHA Solvency Act of 2013, S. 1376, as amended during committee markup. As previously reported, that bill also includes reverse mortgage provisions, as well as measures to more broadly reform the FHA. The bill as approved by the committee includes amendments that would, among other things, (i) provide that in addition to the principal dollar amount limitation on all insured HECM loans, fixed rate HECMs may not involve a principal limit with a principal limit factor in excess of .61, (ii) allow HUD to promulgate rules to require servicers of FHA loans to enter into a subservicing arrangement with any independent specialty servicer approved by HUD, and (iii) prohibit FHA from insuring a mortgage executed by a borrower who was the borrower under any two residential properties that have been previously foreclosed upon. In addition, during the markup committee members offered and then withdrew numerous amendments that later could be included in the bill that is considered by the full Senate. For example, those amendments would (i) create a statutory requirement that HUD/FHA repay Treasury for any funds needed to stabilize the MMI Fund, (ii) revise the indemnification provisions to provide certainty for lenders, and (iii) provide the FHA additional flexibility in times of financial crisis to ensure it can play a countercyclical role. Finally, committee members agreed to work with the FHA to expand loss mitigation options for individuals who receive income from sources other than employment.
SEC Adopts New Broker-Dealer Requirements, Amends Others
On July 31, the SEC approved a final rule that amends certain broker-dealer annual reporting, audit, and notification requirements. The amendments require, among other things, (i) that broker-dealers conduct audits in accordance with PCAOB standards, (ii) that broker-deals that clear transactions or carry customer accounts agree to allow the SEC or the broker-dealer’s designated examining authority (DEA) to review the documentation associated with certain reports of the broker-dealer’s independent public accountant and to allow the accountant to discuss the findings relating to the reports of the accountant with those representatives when requested in connection with a regulatory examination of the broker-dealer, and (iii) that broker-dealers file a new form with their DEA that elicits information about the broker-dealer’s practices with respect to the custody of securities and funds of customers and non-customers. Broker-dealers are required to begin filing new quarterly reports with the SEC and annual reports with the Securities Investor Protection Corporation by the end of 2013, and must begin filing annual reports with the SEC June 1, 2014. The SEC also approved amendments to the net capital, customer protection, books and records, and notification rules for broker-dealers. Those amendments take effect 60 days after publication in the Federal Register.
President Obama Announces Plan to Nominate Federal Reserve Board Governor For Deputy Treasury Secretary
On July 31, President Obama announced that he will nominate Federal Reserve Board Governor Sarah Bloom Raskin as Deputy Treasury Secretary. Ms. Raskin was appointed to her current position by President Obama in October 2010, and her term is not due to end until January 2016. Prior to joining the Federal Reserve Board, Ms. Raskin served as Maryland’s Commissioner of Financial Regulation and before that was Managing Director at the Promontory Financial Group. She is a lawyer and previously served as the Banking Counsel for the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
Fannie Mae Announces Standard and Streamlined Modifications Rate Adjustment
On July 31, Fannie Mae announced that as of September 1, 2013, the rate for standard and streamlined modifications is 4.625%, an increase from the 4% applicable to modifications with approved dates between December 1, 2012 and August 31, 2013. The notice reminds servicers that the interest rate used for the permanent loan modification must be the same interest rate reflected in the borrower’s Trial Period Plan.
Fannie Mae, Freddie Mac Announce Uniform Dataset to Support CFPB Closing Disclosures
On July 30, Fannie Mae and Freddie Mac announced that they are developing a standardized dataset to support the consolidated closing disclosure forms expected to be finalized by the CFPB in the coming months. The new Uniform Closing Dataset (UCD) is a component of the broader Uniform Mortgage Data Program currently being implemented by Fannie Mae and Freddie Mac, which is designed to standardize the way loan data is defined, captured, and delivered. The enterprises are currently obtaining input from select industry participants and will release the UCD after the CFPB finalizes its rule.