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CFPB Extends Time To Respond To Debt Collection Proposal
On January 13, the CFPB issued a notice extending the comment period for its advance notice of proposed rulemaking related to debt collection practices. The notice states that the comment period, which was set to end on February 10, 2014, has been extended through February 28, 2014 in response to numerous formal and informal requests for additional time.
CFPB Updates Mandatory Mortgage Publications
On January 10, 2014, the CFPB published a notice in the Federal Register that three mortgage publications lenders are required to provide to borrowers have been revised to reflect certain mortgage rules that went into effect on that date. These publications, which are available on the CFPB’s “Learn More” web page, are: (i) the What You Should Know About Home Equity Lines of Credit (HELOC) Brochure; (ii) the Consumer Handbook on Adjustable-Rate Mortgages (CHARM) Booklet; and (iii) the Shopping for Your Home Loan: Settlement Cost Booklet (sometimes called the RESPA Booklet).
- HELOC Brochure – The CFPB states that this brochure was revised to add a reference to the requirement that lenders must provide borrowers with a list of housing counselors in their area, CFPB contact information, and updates to other Federal agency contact information. It also adds CFPB resources for consumers, including information about how consumers can submit a complaint to the Bureau, a link to the Bureau’s online ‘‘Ask CFPB’’ tool to find answers to questions about mortgages and other financial topics, and a link to an online tool to find local HUD-approved housing counseling agencies.
- CHARM Booklet – According to the CFPB, these revisions: (i) remove references to certain fees and product types that are no longer permitted, such as prepayment penalties on adjustable-rate mortgages; (ii) add information about the lender’s obligation to consider the borrower’s ability to repay the loan, provide disclosure of interest rate adjustments, and ensure a borrower has received homeownership counseling before making a negative amortization loan; and (iii) add CFPB contact information and resources for consumers and updates to other federal agency contact information.
- RESPA Booklet – The CFPB explains that this booklet was revised to also add contact information and consumer resources, along with information about new servicing protections for borrowers, including servicer obligations to: (i) respond promptly to consumer requests for information and notices of errors; (ii) provide mortgage payoff statements and monthly billing information; and (iii) contact delinquent consumers regarding options to avoid foreclosure.
The notices states that “[t]hose who provide these publications may, at their option, immediately begin using the revised HELOC Brochure, CHARM Booklet, or Settlement Cost Booklet, or suitable substitutes to comply with the requirements in Regulations X and Z. The Bureau understands, however, that some may wish to use their existing stock of publications. Therefore, those who provide these publications may use earlier versions of these publications until existing supplies are exhausted. When reprinting these publications, the most recent version should be used.”
New FHFA Director Takes Immediate Action To Halt G-Fee Increases, Announces Senior Staff Appointments
On January 6, former Congressman Mel Watt was sworn in as director of the FHFA. Two days later, on January 8, the FHFA halted previously announced plans to increase the base guarantee fee (g-fee) for all mortgages by 10 basis points, update the up-front g-fee grid, and eliminate the up-front 25 basis point adverse market fee except in certain states. Those changes were scheduled to take effect for (i) all loans exchanged for mortgage-backed securities with settlements starting April 1, 2014, and (ii) all loans sold for cash with commitments starting March 1, 2014. The move by FHFA Director Watt formalized a promise he made shortly after being confirmed for the position to delay the g-fee changes pending further review of their impact on mortgage credit availability and Fannie Mae and Freddie Mac’s risk exposure. The delay is opposed by, among others, several Republican members of Congress, who on January 8 sent Mr. Watt a letter urging the Director to implement the g-fee changes as originally announced.
On January 10, the FHFA announced several senior staff appointments. Bob Ryan, Senior Vice President of capital markets at Wells Fargo Home Mortgage and former adviser to HUD Secretary Shaun Donovan, will serve as Special Advisor – Industry. Eric Stein will leave the Center for Responsible Lending to serve as acting chief of staff before transitioning to Special Advisor – Consumer. Mr. Stein previously served as Deputy Assistant Secretary for Consumer Protection at the Treasury Department. Mario Ugoletti, who has served as a Special Advisor to the Acting Director of the FHFA since 2009, and has been appointed Special Advisor - Agency. Finally, Megan Moore will join the FHFA as Special Advisor – Intergovernmental. She most recently served in the Treasury Department’s Office of Legislative Affairs as Deputy Assistant Secretary for Housing, Small Business and TARP.
Senators Introduce Prepaid Card Bills
On January 9, Senator Mark Warner (D-VA), released the Prepaid Card Disclosure Act of 2014. The bill would amend the Electronic Fund Transfer Act to require any person that offers certain prepaid card accounts to offer with any application a table of fees that (i) can be “easily understood”; (ii) is “clearly and conspicuously” displayed; and (iii) includes, at a minimum, the amount and description of each fee that may be charged in connection with the account. In addition, a toll-free number and website at which the consumer can access the fee disclosure would have to be included on the card or other means of account access. The bill would require the CFPB to establish by rulemaking a format for the fee table and would allow the CFPB to require the placement of a QR code or similar technology on any packaging, card, or other object associated with the account to provide an electronic link to the disclosures. The bill follows the December 2013 introduction of the Prepaid Card Consumer Protection Act, sponsored by Senators Robert Menendez (D-NJ) and Richard Blumenthal (D-CT). The bill includes disclosure requirements similar to the Warner bill, plus a “wallet sized” fee disclosure requirement. In addition, Senator Menendez’s bill would, among other things, prohibit numerous fees and most credit features, and would require that financial institutions and account providers close accounts and refund the balance after 12 months of inactivity or other term of inactivity established by the CFPB, and upon request of the consumer.
Senators Seek More Transparency In Federal Agency Settlements
On January 8, Senate Banking Committee members Elizabeth Warren (D-MA) and Tom Coburn (R-OK) released the “Truth in Settlements Act.” The legislation would mandate that for any criminal or civil settlement entered into by a federal agency that requires total payments of $1 million or more, the agency must post online in a searchable format a list of each covered settlement agreement. The list must include, among other things: (i) the total settlement amount and a description of the claims; (ii) the names of parties and the amount each settling party is required to pay; and (iii) for each settling party, the amount of the payment designated as a civil penalty or fine, or otherwise specified as not tax deductible. The bill also would require that public statements by an agency about a covered settlement describe: (i) which portion of any payments is a civil or criminal penalty or fine, or is expressly specified as non-tax deductible; and (ii) any actions the settling company is required to take under the agreement, in lieu of or in addition to any payment. The bill would exempt disclosure of information subject to a confidentiality provision, but would in cases where partial or full confidentiality is applied, require the agency to issue a public statement about why confidential treatment is required to protect the public interest of the U.S. The bill also would require public companies to describe in their annual and periodic SEC reports any claim filed for a tax deduction that relates to a payment required under a covered settlement. In announcing the legislation, Senator Warren stated that the bill is needed to “shut down backroom deal-making and ensure that Congress, citizens and watchdog groups can hold regulatory agencies accountable for strong and effective enforcement that benefits the public interest.”
House, Senate Bills Seek To Ease Volcker Rule Impact On TruPS CDOs
On January 8, House Financial Services Committee chairman Jeb Hensarling (R-TX) and committee member Shelly Moore Capito (R-WV) introduced a bill, H.R. 3819, that would clarify that the Volcker Rule will not require banking institutions to divest their ownership in Trust Preferred Securities (TruPS) collateralized debt obligations (CDOs) that were issued before the date of the final Volcker Rule, December 10, 2013. A group of Republican Senators also announced a bill, the text of which was not immediately available. As recently reported, federal regulators are reviewing whether it is appropriate and consistent with the Dodd-Frank Act to fully exempt TruPS CDOs from the Volcker Rule prohibitions on ownership of covered funds. On January 7, a group of House Democrats sent a letter to the regulators urging them to exempt banks with less than $15 billion in assets from the Volcker TruPS CDO divestiture requirement.
Federal Authorities Announce Major BSA/AML Action Related To Madoff Scheme
On January 7, the U.S. Attorney for the Southern District of New York, the OCC, and FinCEN announced the resolution of criminal and civil BSA/AML violations by a major financial institution in connection with the bank’s relationship with Bernard L. Madoff Investment Securities and Madoff Securities’ Ponzi scheme. The bank entered into a deferred prosecution agreement (DPA) to resolve two felony violations of the Bank Secrecy Act: (i) that the bank failed to enact adequate policies, procedures, and controls to ensure that information about the bank’s clients obtained through other lines of business – or outside the United States – was shared with compliance and AML personnel; and (ii) that the bank violated the BSA by failing to file a Suspicious Activity Report on Madoff Securities in October 2008. According to the U.S. Attorney, pursuant to the DPA the bank (i) agreed to waive indictment and to the filing of a Criminal Information; (ii) acknowledged responsibility for its conduct by, among other things, stipulating to the accuracy of a detailed Statement of Facts; (iii) agreed to pay a $1.7 billion non-tax deductible penalty in the form of a civil forfeiture (the largest ever financial penalty imposed by the DOJ for BSA violations); and (iv) agreed to various cooperation obligations and to continue reforming its BSA/AML compliance programs and procedures. In a separate action, the OCC levied a $350 million civil money penalty to resolve parallel BSA/AML allegations included in a January 2013 cease and desist order. Finally, the bank consented to a FinCEN assessment pursuant to which it must pay an additional $461 million.
DOJ, SEC Announce Anti-Bribery Enforcement Actions Against U.S. Metals Firm
On January 9, the SEC and the DOJ announced the resolution of parallel FCPA enforcement actions against a major U.S. extractive industries firm and one of its subsidiaries. The actions related to improper payments to officials of a foreign government, and to a “middle man” serving as an intermediary to secure contracts to supply a government controlled aluminum plant. The SEC’s cease and desist order asserts the parent firm lacked sufficient internal controls to prevent and detect bribes made through foreign subsidiaries, which were improperly recorded in the parent company’s books and records as legitimate commissions or sales. The order directs the parent firm to disgorge $175 million, $14 million of which would be satisfied by forfeiture required in the parallel DOJ action. As a result of that action, the parent company pleaded guilty to one count of violating the FCPA’s anti-bribery provisions and consented to entry of a judgment that requires the company to pay a criminal fine of $209 million and forfeit $14 million. The plea agreement also requires the parent firm to maintain and implement an enhanced global anti-corruption compliance program, and both the parent and subsidiary companies must cooperate with the DOJ in its continuing investigation of individuals and institutions that were involved in the subject activities.
Senate Confirms Federal Reserve Board Chair
On January 6, the U.S. Senate voted 56-26 to confirm Janet Yellen to be Chairman of the Board of Governors of the Federal Reserve. Ms. Yellen will begin her appointment after Chairman Bernanke steps down at the end of January.
NCUA To Host Town Hall With CFPB Director
On January 8, the NCUA announced that Board Chairman Matz will host CFPB Director Richard Cordray for a free town hall webinar on February 12, 2014. The event will be the third NCUA has hosted with the Director and it is expected to cover a wide range of consumer financial protection issues.